There have been more warnings of a “lost decade” of returns for the stock market in recent months. Still, the chances of that actually happening appear less likely, given this year’s massive 25% plunge.
That’s according to a Friday note from Bank of America strategist Savita Subramanian, who was one of the first on Wall Street to warn of a potential lost decade late last year.
She noted that with plummeting stock markets come falling valuations, which are now starting to appear attractive for longer-term investors. The S&P 500’s price-to-earnings multiple has plunged considerably so far this year, with the trailing and forward P/E ratios dropping 36% and 29%, respectively.
A valuation model used by the bank suggests forward annualized price returns of 6% for the S&P 500 over the next decade. That’s the highest return forecast since May 2020.
“Valuation matters long-term, explaining ~80% of subsequent 10-yr S&P 500 returns,” Subramanian said. “And this year’s bear market provides an attractive opportunity for long-term investors.”
