US stock market is unlikely to keep beating its economy – CE

While the stock market fared much better than the economy in the US overall during the past ten years, analysts at Capital Economics do not expect that to remain the case. 

See – S&P 500 Index still have much further to rise for three reasons – Natixis

Key quotes

“The valuation of the US stock market is higher now than at any time in the past sixty years apart from during the latter stages of the dot com bubble. While its valuation could conceivably continue to climb against a backdrop of extremely accommodative monetary policy and economic recovery, our expectation is that it will instead drop back gradually after the end of next year. All else equal, that would cause the stock market to grow more slowly than the economy.”

“While we would not be surprised if the aggregate sales of the US non-financial corporate sector grew a bit more rapidly than GDP as multinationals benefitted from faster average growth in demand overseas than at home, we suspect that the sector’s profit margin will edge down. That could conceivably happen for a variety of reasons, such as higher corporate taxes or an antitrust backlash.”

“We project an average annual rise in the US stock market between 2021 and 2030 of ~4.7% (compared to ~5% for US nominal GDP). Nonetheless, once we factor in dividend income, we suspect that the average annual return from the US stock market will be nearer 7%, and comfortably eclipse that from US Treasuries.”