by John P. Hussman, Ph.D.
[…] Despite a near-term outlook that remains rather neutral (though with negative skew), we believe that one requires either a disregard or an ignorance of market history to dismiss the likelihood of a 40-55% market retreat over the completion of the current market cycle. From present valuations, a market loss of that magnitude would not be a worst-case scenario, but merely a run-of-the-mill completion of the current market cycle. On a longer horizon, we presently estimate that S&P 500 nominal total returns are likely to average just 0-2% annually over the coming 10-12 years, with negative expected real returns on both horizons. Since the dividend yield on the S&P 500 exceeds 2% here, that also implies that we fully expect the S&P 500 Index to trade at a lower level in 10-12 years than it does today.