Forward Returns Continue To Fall
One of the interesting aspects of
“bull markets" is the further they go, the lower forward returns fall. In hindsight, such an idea seems counter-intuitive, but ultimately it always comes down to valuations. As Warren Buffett once quipped:
“Price is what you pay. Value is what you get."
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When markets are incredibly exuberant, as they are currently, it is not surprising that such is commonly associated with previous market peaks. The chart below shows the annual rate of change of the inflation-adjusted S&P 500 index from March to March. The recent market surge marks one of the largest on record. Such increases typically preceded corrections (10-20%) to outright bear markets.