RIA Advisors Chief Investment Strategist Lance Roberts stated in a post on the 25th that there may be a risk of recession for US stocks in the next decade. He conducted a comprehensive analysis using multiple indicators and identified evidence of an upcoming recession through chart data.
Table of Contents:
Is the golden age of US stocks about to disappear?
Are we in a stock market bubble?
The end of the era of loose monetary policy
Will this time be different?
As the world’s largest economy, the US stock market has been on a continuous rise over the past decade, with the upward trend becoming more apparent in recent years. Many believe that recent factors such as the interest rate cycle and the US presidential election will continue to accelerate the rise of US stocks.
However, Lance Roberts, Chief Investment Strategist of RIA Advisors, expressed in an article released on the 25th that based on warning reports from multiple institutions, the annualized rate of return for the US stock market may only be 3% in the next decade.
To determine whether US stocks are facing a recession, Roberts first discussed the historical returns of the stock market in the article. He pointed out that since 2008, the returns of US stocks have significantly increased, and many investors may have become accustomed to a high return investment environment.
Although US stocks have continuously provided high returns to investors in the past decade, leading to these high returns being considered “deserved”, the reality may not be so.
Roberts also cited the conclusion of a report by JPMorgan, which raised concerns about whether the US stock market is on the verge of a decline. In response to this, Roberts observed stock market valuations and stated that the current valuation of the US stock market is higher than the historical average. This high valuation reflects market optimism but may also be a warning signal. If the market is priced too optimistically, any slight disturbance may trigger a significant downturn.
In the past decade, the Federal Reserve and central banks around the world have implemented extremely loose monetary policies, with near-zero interest rates and quantitative easing measures. This not only reduced borrowing costs but also stimulated investors’ risk appetite, thereby driving up stock market activity.
However, the recent focus on combating inflation in the past two years has forced central banks to tighten monetary policies. Although the Fed has gradually reduced its balance sheet, government spending (such as the “Inflation Reduction Act” and the “Chip Act”) continues to provide strong support for economic growth and corporate profits.
On the other hand, although the Fed has started cutting interest rates, it has clearly stated that the federal funds rate is unlikely to return to zero levels. Therefore, if the central banks continue to maintain a high-interest-rate environment and continue to reduce their balance sheets, the previously “easy profit” environment will undergo significant changes, undoubtedly putting pressure on future investment returns.
However, when predicting future developments based on historical data, some investors may argue that “this bull market is different.” However, Roberts stated that there is no indicator supporting this optimistic view.
He also emphasized that this article is not predicting the arrival of the next “financial crisis.” Roberts wants to express that, based on a comprehensive analysis of multiple indicators, the future investment returns may be relatively lower compared to the prosperous period experienced in the past eight years, especially against the backdrop of the Fed and central banks withdrawing from market intervention.
Roberts further stated that in the next decade, the market may still experience bull markets, but for most of the time, returns may be swallowed by the upcoming economic recession and market adjustments.
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