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The stock market will post dismal returns over the next 10 to 15 years, says investment veteran Bill Smead.
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Smead Capital’s CIO warned that inflation is likely to persist in the long term.
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That could create a situation similar to that of the 1970s, when rising prices created a “dead zone” for stocks.
The stock market is headed for dismal returns over the next decade, according to an ultra-bearish CIO.
Bill Smead, the investment head of Smead Capital Management, has been warning about the future for equities for some time now. That’s because inflation will persist, putting pressure on S&P 500 yields for years to come, he warned in a recent note to clients.
“We assume that the S&P 500 index is not going anywhere in the next 10 to 15 years and that the inflation zeitgeist will persist,” Smead said.
In an earlier note, Smead compared the current macro environment to the 1970s, when rising inflation and high interest rates led to a “dead ball” period for equities. A new era of inflation could create a similar “dead zone,” he wrote, resulting in double-digit stock losses on par with the Internet crash and the Great Financial Crisis.
Inflation has cooled dramatically from its highs several years ago, thanks to the Fed’s tightening of monetary policy. Consumer prices rose 3.4% year over year in April, but market commentators note that this is still well above the Fed’s long-term target of 2%.
Inflation could also worsen in coming years as prices are driven up partly by high government debt, Smead said. The federal debt is approximately $34.5 trillion.
‘We have had huge budget deficits for years and there are three ways to balance the budget. You can cut the budget, raise taxes, or inflate your way out of the situation by paying it back in devalued US dollars,” Smead said, later adding that the first two options were unlikely due to political constraints.
Other ultra-bearish forecasters have warned of a tough path ahead for stocks, especially as the US remains at risk of entering a recession next year. Economists at the New York Fed have priced in a 50% chance of a recession in April 2025, according to their latest forecast.
Read the original article on Business Insider
