If 2014 is a “normal” year, with earnings growing at 6% and P/E ratios at 15, the U.S. stock market will lose about 15%.
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The following is a brief summary of my annual market review and forecast, which you can peruse in more detail here
. The commentary is divided into three sections:
The Future: Despite popular opinion to the contrary, 2014 is likely to disappoint rather than delight, but you can use a formula I provide to draw your own conclusions - just plug in your estimates for earnings growth and P/E. Also, momentum effects point toward continuing problems in material stocks and good relative performance from certain growth companies. Similarly, some sectors in foreign countries are projected to perform better than others.
The Present: A 33% return on the U.S. stock market is among the best and places the past five years in the better category as well, in sharp contrast to the previous five years, which were among the worst. The U.S stock market has outperformed all other asset classes.
The Past: I provide tables and histograms of returns on U.S. stocks, bonds, T-bills and inflation, going back 88 years.