by Peter Wechsler
President & Co-Founder, Franklin Retirement Solutions
[email protected]
I can’t believe it has been 25 years since the whole world was going to shut down as the ball ushered in the year 2000. A quarter-century later the ball is still dropping but think of all the changes we have seen. The closest thing to a smartphone was the Blackberry with the iPhone nowhere on the horizon yet. Today it’s all about artificial intelligence, better known as AI, and that AI has created the need for so much more energy that a few nuclear power plants may reopen. Go figure.
Below is the headline that popped up on my phone Tuesday afternoon from the Wall Street Journal: “NEWS ALERT/Stocks Cap Best Two Years in a Quarter-Century.” The headline went on to read: The S&P 500 climbed 23%, notching 57 record closes as the economy remained healthy, inflation ticked lower, and an AI-fueled rally in big tech stocks powered on.
Yes, the best two years since before Y2K. Will the markets in the next five years continue to climb and by the 30’s we’ll be referring to this decade as The Roaring Twenties? Market strategist Ed Yardeni is convinced that the S&P 500 will reach 10,000 by the end of the decade, or a 70% increase from the 5,881 that the index closed on Tuesday. We’ll see.
If you instead look at a 60/40 portfolio, with 60% in equities including stocks, mutual funds, and ETFs, and 40% in safe money, J.P. Morgan Asset Management is predicting annual returns of 6.4% over the next 10 to 15 years, according to its Long-Term Capital Market Assumptions report. Again… we’ll see.
Stock market growth follows economic growth, and as of now, a growth in productivity should keep corporate earnings growing. Many are predicting that AI will improve worker productivity which leads to improved bottom lines for corporations. Again, according to Yardini Research, “Past productivity booms in the late ‘50s, the ‘60s, and the late ‘90s all peaked at productivity growth at 3.5% to 4%.”
According to Yardini, each of these past booms had their own drivers. In the 1950s it was building out the interstate highway system and in the 1960s it was mainframe computers and jet engines. Much of the 1990s growth revolved around personal computers and the Internet… dial-up and all.
These past booms show that investments in both the public and private sectors can drive productivity growth. A few examples of public spending (the government) that has spurred private spending includes domestic chip production, clean energy and electric vehicles. A big question is how the new administration and Congress will view public spending and tax cuts in the future. Time will tell.
While all this suggests that markets look good longer term, short-term is always a crap shot. My hunch is no better than anybody else’s, but I’m looking for the markets to have a good year, but not without a lot of choppiness and at least one or two corrections along the way.
Wishing you a Happy & Healthy New Year… and may the Eagles make it to the Super Bowl…
Peter