What Return Assumption are Needed to Repeat the Last 40 Years of S&P Returns? Here's three.

February 11, 2022

Given the current elevated multiples, it can only be assumed that investors expect better performance than the 12.1% historical annual average since 1982. How could the market achieve these results over the next 40-year period?
The current S&P dividend yield is around 1.3%. If we maintain the rate of multiple expansion experienced since 1982, you would need 7.5% in earnings growth to match the historical index return. Of course that would assume a final P/E of 80x.
If multiples stay at their current levels, you’d need either 10.7% in earnings growth or a 5.5% dividend yield to match historical average index returns. This would all have to happen without another 10% drop in long-term interest rates.

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