February 12, 2018

|Daniel A. White

Last week I mentioned the market starting off hot in 2018. Of course, people love those types of stories.

But if you think about it, we’ve been in a bull market since 2009. That’s nine long years of market wins – and the biggest gains have been in the last 12 months.

It seems we can expect similar performance from the market in the short-term, as in one or two years. That’s because in the short term, trends matter.

However, long-term outlooks of up to 10 years center on valuations. Valuations don’t come up much in day-to-day market discussions outside of mergers and acquisitions.

The longer forecasts that focus more on valuations are mediocre.

Investor Jeremy Grantham thinks there could be a rise in performance until the bull run ends swiftly (.pdf), a term he coins as a “melt-up.”

Grantham’s firm forecasts a -4.6 percent return over the next seven years for large cap domestic stocks. Yikes.

Rob Arnott, another prominent investor, comes to a similar finding. He calls for 0.4 percent average real returns over the next decade.

And to achieve these returns, investors are plowing more way more cash into stocks than their savings. If there’s a crash, and people have little cash reserves, that’s a scary thought.