This morning Bloomberg posted the headline that the S&P 500 Index has recovered half of its recent 57% bear market plunge. This means that from the peak in October 2007, the market is now down about 28%. Had the S&P 500 gone from its high of 1565 to its current level of 1120 in roughly a straight line, it would not have provoked a fraction of the investor despair that it did when it first fell to 676 on March 9 ...
...the decade of the 1990s ended in the biggest stock market bubble in the history. The bubble was centered in technology stocks and, had you avoided this overblown sector, you would have done fairly well over the last ten years. Furthermore, not only were the 1990s extraordinary, the 1980s also offered investors near record returns. ...The last ten years brought us back to earth and have cancelled the excess returns of the 1990s.
This sets us up for normal market returns in the next decade. I see no reason why stocks will not return 6% to 7% per year after inflation over the next ten years. As I have maintained, valuations are quite reasonable and it will not be long before the earnings on the S&P 500 surpass their high of $92 a share reached at the top of the last expansion. Even if it takes five years for earnings to hit $100 (and from a historical perspective that would be extremely long), the market would then be valued at 1500 with a conservative 15 P-E ratio. That is 38% above the current market and an 8% annual return when dividends are added.
Jeremy Siegel, 12.28
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