Top 3 Markets to Diversify Into as US Expected Returns Trend Lower

investing.com:

The US stock market, via the S&P 500, has returned an average of 7.2% adjusted by inflation and dividends over the last 30 years, which is pretty much in line with the 100-year 7.3% real average.

However, when we zoom in on the last decade, we will notice that US stock market returns have started to move much faster. With inflation under control (until 2021) and a higher CAGR (Compounded Annual Growth Rate), the US benchmark index yielded around 9.5% above inflation over the last ten years — and that's taking into consideration last year's bear market and the inflation surge, which ate into a few of these returns.

This has obviously led to stretched valuations for the US market, especially when we look at it from a historical perspective. For instance, the Buffett indicator — which measures the total market cap of the stock market against the country's GDP — is currently running at a high of 180%; a level only reached in 2020 and 2021 in the last decade.

According to the same Buffett indicator, this implies expected below-average annualized returns for the Wilshire Total Market Index in the decade ahead of only 1.2% yearly.

Looking at the «modern Buffett indicator» (which adds total Central Bank assets to the measure), US market valuations are looking a little better, with the indicator at 128%. Still, the expected yearly return sits at a meager 2.2% over the next ten years.

Source: GuruFocus

Does this mean I expect the US market to return between 1.2% and 2.2%/year over the next decade?

Absolutely not . With the US economy still leading the pack in global markets, non-stop technological developments, and a very resilient consumer force, I am still keeping the bulk of my investments in the US stock market.

Howev