"Overall, U.S. large caps [as reflected in the S&P 500] produced overall gains of 15.5% a year, an extraordinary number. The last ten years were something of a seldom-seen, golden age for this trio, but especially profits and multiples. Returns have three sources: dividends, growth in earnings that lift payouts in tandem, and expansion in valuations or PEs."
"Shareholders in U.S. big caps will make one-fifth the returns over the next 10 years they pocketed since 2016, and those meager gains will barely edge the CPI. Rob Arnott, founder and chairman of Research Affiliates, which oversees strategies for nearly $200 billion in index funds and ETFs, bases this prediction on sophisticated analysis of past trends combined with fundamental economic mathematics."
Rob Arnott, founder of Research Affiliates, predicts significantly lower returns for U.S. large-cap investors over the next ten years compared to recent performance. The S&P 500 delivered extraordinary 15.5% annual returns from 2016-2026, driven by three return sources: dividends, earnings growth, and valuation expansion. Arnott's analysis indicates future returns will be substantially diminished, potentially one-fifth of recent gains and barely exceeding inflation rates. This pessimistic outlook reflects a shift from the exceptional conditions that fueled the previous decade's performance, suggesting investors should prepare for a more challenging investment environment ahead.
Read at Fortune
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