Classifieds

Commentary
For many investors who started their investing journey following the financial crisis of 2008–09, forward returns will be disappointing compared to the last decade. But it won’t be solely due to high valuations.
I recently discussed why the “Next Secular Bear Market” may have started, which touched on the issues of valuations and forward returns. To wit:
“Three items drive secular bull markets: 1) valuation expansion, 2) earnings growth, and 3) falling interest rates. The most prominent driver of secular returns are periods of valuation expansion and contractions.”
(Source: Federal Reserve Bank of St. Louis / Dr. Robert Shiller / Refinitiv chart: RealInvestmentAdvice)
“The chart above shows the history of secular market periods going back to 1871 using data from Dr. Robert Shiller. You will notice that secular bull markets begin with CAPE [cyclically adjusted price-to-earnings ratio] valuations around 10 times earnings or even less. Secular bear markets tend to start with valuations of 23–25 times earnings or greater. (Over the long term, valuations do matter.) Most notably, secular BEAR market periods are defined by near-zero returns during the valuation contraction process.”...