Marcelo Carvalho, head of global emerging markets research, added. “The numbers are meaningless in a sense,” he said, and continued with a charming smile: “Whenever I make a forecast, and I’ve done it for many years, I know it’s going to be wrong.” But, he added, “the numbers are an example of where things are going.” And they provide the grounding, he said, for “thematic discussions with our customers.”
People in finance are often well informed, even when their typical predictions cannot be trusted. For example, Bank of America’s year-end forecast is intriguing. This signals trouble ahead in the US stock and bond markets, with predictions that the S&P 500 will turn nearly flat next year. I will not attach much importance to that claim, because by September, Bank of America predicted that the S&P 500 would collapse. This year at 3,800. When the market surpassed that level, the bank delayed its 2021 “forecast”, thereby profiting.
But Bank of America’s outlook has been consistent in this sense: it is negative about the US stock market.
In an online presentation Monday, Savita Subramaniam, head of US equities and quantitative strategy at Bank of America, said the bank’s computer model for the S&P 500 “is now yielding negative returns for stocks for the next 10 years.” The last time this happened, she said, was in 1999-2000, shortly before the dot-com crash. He added that the current bull market has taken the stocks higher and the valuations are worthless. Over the long haul, this means diminishing returns.
Long-term projections of a decade or more have been shown to have greater accuracy than shorter-term projections, and I take that projection as a sober warning. In the past 12 months alone, the S&P 500, including dividends, has delivered returns of about 25 percent, pushing the market to a level that may not be sustainable.
I don’t know when or how this will happen, but at some point the stock market will come back down to earth. This is a prediction you can trust.