Bernstein sees US stock returns slowing over coming decade

economictimes.indiatimes.com:

rate of return in US stocks is likely to run out of steam, according to Sanford C. Bernstein strategists.US equities are now expected to show an annualized total return of 4% over the next decade, much lower than the 12% seen in the previous 10 years, strategists Sarah McCarthy and Mark Diver wrote in a note. Their projection is based on one valuation measure: a long-term cyclically-adjusted price-to-earnings ratio, known as the Shiller PE.

At 29.3 as of June, the index level is in the 94th percentile, the strategists said. A higher reading has generally equated to lower long-term equity returns. And yet, there are plenty of reasons to buy stocks, including a better corporate earnings trajectory and stronger relative returns compared with bonds, McCarthy said.

Moderately higher inflation is also a “sweet spot” for equities, while household allocation levels suggest there’s room to maintain or increase exposure, she said. The strategist correctly predicted in January that the European stock rally had more room to run, with the Stoxx Europe 600 Index gaining about 2% since then. After slumping last year, the S&P 500 has rallied nearly 19% in 2023 as investors bet on resilient economic growth and a softening in the Federal Reserve’s policy outlook.