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  4. Stocks are 'going nowhere' for the next decade as inflation sticks around and US debt balloons, CIO says

Stocks are 'going nowhere' for the next decade as inflation sticks around and US debt balloons, CIO says

Jennifer Sor   

Stocks are 'going nowhere' for the next decade as inflation sticks around and US debt balloons, CIO says
  • The stock market will see dismal returns for the next 10-15 years, investing vet Bill Smead said.
  • The Smead Capital CIO warned inflation will likely stick around over the long term.

The stock market is headed for a stretch of dismal returns for at least the next 10 years, according to one ultra-bearish CIO.

Bill Smead, the investing chief of Smead Capital Management, has been warning about the path ahead for stocks for a while now. That's because inflation will stick around, hammering S&P 500 returns for years, he warned in a recent letter to clients.

"We assume the S&P 500 Index is going nowhere for 10 to 15 years and the inflation 'zeitgeist' is here to stay," Smead said.

In a previous note, Smead compared the current macro environment to the 1970s, when soaring inflation and elevated interest rates led to a "dead ball" period for stocks. A new inflationary era could produce a similar "dead zone," he wrote, resulting in double-digit stock losses on par with the dot-com crash and the Great Financial Crisis.

Inflation has cooled dramatically from its highs several years ago, thanks to the Fed's tightening of monetary policy. Consumer prices rose 3.4% year-per-year in April, but market commentators note that's still well-above the Fed's long-run 2% inflation target.

Inflation could also get worse in coming years, as prices are being stoked partly because of large public debt levels, Smead said. The federal debt stands at around $34.5 trillion.

"We've run massive fiscal deficits for years, and there are three ways to balance the budget. You can cut the budget, raise taxes, or inflate your way out by paying it back in devalued American dollars," Smead said, later adding that the first two options were unlikely due to political constraints.

Other ultra-bearish forecasters have warned of a rocky path ahead for stocks, especially as the US still risks tipping into recession within the next year. New York Fed economists have priced in a 50% chance a recession will strike by April 2025, according to their latest forecast.


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