The stock market will beat inflation by an average of 0.6% a year, according to the most recent reading on this stock market indicator. This is the first time since the beginning of the pandemic that the indicator is projecting a positive return.
It’s bullish for the stock market that the average household’s equity allocation has declined as much as it has.
According to econometric tests to which I subjected this and other valuation indicators, it has one of the very best, if not the best, track records when forecasting the stock market’s real total return over the subsequent decade. That indicator was almost as high one year ago, in December 2021, at 51.66%. Since the date of that reading, the Vanguard Total Stock Market ETF VTI, +0.34% — whose 4,026 stocks represent the U.S. market as a whole — has lost 19.9% of its value.
Furthermore, I wouldn’t be surprised if the stock market over the next decade beats this projected return. That’s because of the particular circumstances that caused the indicator to drop so much over the past year. During a typical bear market, the average household’s portfolio allocation to stocks will decline more or less automatically as equities lose ground and bonds rise in value.
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