In a new economic letter recently released by the Federal Reserve Bank of San Francisco (h/t @dvolatility), a pair of researchers forecast a price-to-earnings ratio for the S&P 500 of a mere 8 in the year 2025 (due to retiring baby boomers’ waning risk appetites). This compares to 17 at the end of last year.
Liquidity moves markets!Follow the money. Find the profits!
Let’s take this prediction out to its fullest conclusion. Assuming 3.8% earnings growth over the next decade (the long-term historical average according to Robert Shiller) we would achieve an earnings number of 156.76 for the S&P 500 in the year 2025.
Applying the 8.23 multiple to those earnings we get a price level of 1290 for the S&P 500. Yesterday the index closed at 2090. Ultimately, this research concludes then that stocks could very well witness a decline of 800 points over the coming decade, or about 40%, as baby boomers retire and shift their portfolios to a more conservative stance.
Have you heard a more dire prediction from ANYONE?
Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. I may receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.