Skip to main content

2020s unlikely to be a rerun of the 1930s and 2000s

We anticipate that US equities will outperform long-dated Treasuries over the next ten years, even though the valuation of the stock market is even higher now than it was at the beginning of the 1930s and approaching its level at the outset of the 2000s – the only two decades in the past 100 years when US equities underperformed. The underperformance of US equities vis-à-vis long-dated Treasuries in the 1930s and 2000s (see Chart 1) followed the bursting of bubbles in the stock market. We don’t think we are in the latter stages of another bubble now, though, despite Shiller’s cyclically adjusted price earnings ratio (CAPE) for the S&P 500/ Composite being above its level on the eve of the Great Crash and only ever being exceeded in the final stages of the dotcom boom. A key reason is that the valuation of the stock market does not look stretched relative to that of the bond market. Some other hallmarks of stock market bubbles also appear to us to be missing, such as high leverage and major financial imbalances. The upshot is that, over the next ten years or so, we project that the real returns from US equities will still be positive (albeit less so than in the 2010s and 2020), whereas we forecast that those from long-dated Treasuries will be negative against a backdrop of a slow rise in nominal yields and inflation.

Become a client to read more

This is premium content that requires an active Capital Economics subscription to view.

Already have an account?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services

Get access