Economic Consensus

Global equities have re-rated sharply higher over the past two years as the correlation between stocks and macro data has broken down. Developed markets have been the largest beneficiary of central bank policy during this period, evidenced by the current nosebleed valuations now seen in the US. The Shiller PE on the S&P 500 is approaching 25 – a starting level that has historically produced negative real returns for investors over the next ten years.  If growth returns to trend and rates remain near zero, then perhaps investors will continue to reward stocks with historically rich multiples.  I suppose anything can happen, but we typically shy away from betting big on a long shot unless we are getting very good odds – 25x normalized earnings is a bit of a stretch.  Recent remarks from Gerard Minack put conventional wisdom into perspective: “Markets appear to expect that global growth will accelerate next year.  The economic consensus has expected acceleration towards trend growth ‘next year’ every year for the past three.”

Consensus GDP Forecasts

Source: Minack Advisors