Monday , 11 December 2023

Siegel vs. Shiller + Bogle vs. Gross – On the Future of the S&P 500

Recently the Wall Street Journal had an interesting article* presenting Jeremy Siegel’s and Robert Shiller’s differing points of view on what to expect in the way of annual returns on the S&P 500 over the next 10 years followed up by a debate** on between John Bogle and Bill Gross on the subject. Words: 610

In further edited excerpts the original article*** Jacob Wolinsky ( goes on to say:

Jeremy Siegel vs. Robert Shiller

a) Shiller: Barely positive returns
Shiller measures market valuations based on the average 10 year P/E. The average P/E since 1881 is 16. That number is currently above 21. According to Shiller’s historical data, with a P/E above 20 the market should produce returns that are barely positive over the next ten years. In addition, Shiller monitors the housing market and sees some bearish signs in the housing market that might lead to a decline in stocks.

b) Siegel: 10-12% returns
Seigel takes issue with Shiller’s assessment maintaining that his numbers are skewed due to the unusually large write-offs financial firms took in 2008 and 2009. For example, AIG wrote down $80 billion which Siegel believes will skew the S&P P/E ratio for the next ten years. Excluding one time write-offs like AIG’s, Siegel argues that the market is undervalued. He believes the market can generate 10-12% returns. In addition, Siegel expects low inflation in the future.

John Bogle vs. Bill Gross

a) Gross: 4-5% returns
Gross expects stocks to return 4-5%, not much more than the current yield on bonds, maintaining that the economy has entered “a new normal” era where GDP growth and corporate earnings growth will be much lower than in the past.

b) Bogle: 8% return including dividends
Bogle, on the other hand, believes that even with weak growth in the economy that corporate profits should increase by 6% per year and that with a dividend yield of approximately 2%, the S&P should return 8% over the coming years. He also says it is impossible to predict the future P/E ratio, so he assumes it will stay the same.

Jacob Wolinsky
My personal opinion is that:
a) Siegel’s views of 10-12% returns are far too optimistic. He provides no valuation numbers to justify such high returns, even excluding one-time financial charges.
b) I am skeptical of Bill Gross forecast of 4-5% returns because he is always biased towards bonds.
c) I take major issue with Bogle’s statement that it is impossible to predict the future P/E ratio because, even if that were the case, to be conservative an investor must assume it will return to an average level of 16. If that were the case, the S&P 500 would have to drop 25% from current levels. This would decrease future returns from 8% per annum to around 5% per annum.

The market is currently slightly over-valued now which is reasonable since stocks offer a much more attractive return than bonds due to low interest rates. Eventually, however, interest rates will get to levels of at least 4% (which is the minimum normal rate on interest rates) and that would justify a P/E closer to 15.

I am no prophet but if I had to guess, I would think future returns will be somewhere between Bogle’s and Shiller’s estimates, i.e. between 8% and 10% per year.


Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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