Kaminsky's Call: 3 Predictions for The Next Decade
Morgan Stanley, Vice Chairman
Now is the time of year that every analyst, every strategist, and (yes) every pundit puts forth a list of “three predictions for next year.”
The pile of 2011 forecasts is already pretty high, so I’m going to up-the-ante a bit and give three predictions for the year 2021. More specifically—these are my predictions for the next 10 years, since it’s my contention that real gains are made over 3 to 5 year time horizons. Without further ado, here are the three market trends I expect will dominate the next decade.
1) Organic Growth ALWAYS Wins, Over Volatility
One takeaway from the last decade of flat stock performance is that companies that possess genuine, organic growth will net tremendous returns—no matter what the overall state of market volatility.
Compare a chart of Amazon, Apple, or (one of my favorites) Expeditors International to the S&P 500 over the last 10 years to see how this plays out.
To create wealth through multiple bull and bear cycles, the only secret is to spot businesses that exhibit this consistent organic growth.
This rule of investing will not change, and I expect the same outperformance from growth-oriented companies in the next decade as we saw in the last decade.
2) U.S. Equity Market Will Appreciate 6-7 Percent Annually
Historically, the average return of the U.S. stock market has been about 10 percent annually. Half of that, of course, comes from dividends and distributions reinvested. The last decade, as you know, has seen zero returns overall.
So for the next 10 years, I’m expecting 6-7 percent returns: lower than the historical average set in the 20th century, but not as dire as the recent past.
Furthermore, I believe the majority (two-thirds) of those gains will come in the form of reinvested dividends and distributions.
3) The SECULAR Shift To Fixed Income Remains Intact
The phrase ‘bond bubble’ has gotten thrown around a lot this year; in fact, it’s been thrown around a lot over the last 30 years. But ‘bubble’ implies an eventual ‘burst’—and I don’t see that outcome for the bond market anytime soon.
The massive influx of capital into fixed income is a secular change, a trend that has actually been bolstered by the last 10 years of lousy equity performance.
Bond investors will maintain their bond holdings because they’re uninterested in the risk/reward of other asset classes.
Fixed income is exactly where they want to be, and will continue to be.
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Gary Kaminsky does not hold any equity positions.
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