Believe it or not, there is a silver lining to the ongoing market carnage: The expected returns for long-term investors who invest new cash today are continuing to improve and are now considerably better than average.
The S&P 500 is now about 10%-20% below fair value (according to most of the estimates we trust), and this suggests that total returns over the next decade will be higher than 10% per year.
Importantly, this does NOT mean the market won’t drop precipitously from here. It might. Long-term valuation analysis are irrelevant to near-term forecasting, and as we and others have frequently noted, after bubbles of this magnitude, stocks often overshoot by 50% or more.
Below are Jeremy Grantham’s expected 7-year return estimates for various asset classes as of October 31. Most major stock indices are down more than 10% since then, so the current expected returns are even higher.
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