Bearish 10-year prediction
If this chart has any predictive power, the next 10 years should have an average yearly stock market return of -3%. This considers prices and dividends.
On average, when people have a lot of their wealth in the stock market, they don't invest even more. Therefore,
valuations EDIT: MARKET CAPS tend to stop growing or fall.
How accurate is this?
The original prediction was made at the end of 2013. Since then, and including data from 1946, its total R2 dropped from 0.913 to 0.797.
But eyeballing it, it still uncannily predicted the high returns of 2009-2019 (the spike downwards in investor allocation to stocks, since they were afraid after the crisis).
What would happen if everyone followed this?
They'd divest from stocks, and would converge on the long-term average, nullifying the edge. But since currently the prediction is -3% to -4% return, clearly not a lot of people know about or believe in this indicator.
Submitted May 14, 2022 at 11:31AM by danuker
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