What's Next for the S&P 500?

Abstract

It is reasonable to expect the recent performance of the domestic equity markets to continue? This article suggests that the low dividend yield and high price-to-earnings ratio on the S&P 500 imply that investors have reduced their required return on equities, probably because they have become more comfortable with equity investments. Going forward, equities are likely to earn less than the 11% compounded return enjoyed since 1926. Institutions may need to reevaluate their goals and investment strategies to better assure they maintain fund purchasing power net of spending.