U.S. stocks will return 8.1% a year and the S&P 500 will almost double by 2020 after its first losing decade made American equities appear cheap, BlackRock Vice Chairman Robert C. Doll said.
The S&P 500, which closed at 1,101.6 on July 30, will rise 85% to 2,034 by the decade’s end, Mr. Doll said in a statement Monday. U.S. equity returns will outpace those of other developed nations because of attractive valuations, stronger economic growth, shareholder-friendly management practices and more serious problems in other economies, Mr. Doll said.
“Many investors want to forget the last 10 years, which featured the two worst bear markets since the Great Depression,” Mr. Doll said in the statement. “We’re not likely to see double-digit stock returns in the coming 10 years, due to ongoing deleveraging and significant structural problems. But two disastrous market decades in a row is extremely unlikely.”
The S&P 500 had its first retreat for a full decade from 2000 to 2009. Last year’s 23% rally wasn’t enough to restore money lost in two bear markets after the Internet bubble burst in 2000 and the collapse of the subprime mortgage industry sent the index to a 38% decline in 2008.
Normalized earnings-per-share growth and price-to-earnings ratios for the S&P 500 over the next 10 years will match their median rates since 1957, Mr. Doll said. The index’s current P/E is about 15.1 times reported earnings, up from a one-year low of 13.91 reached July 2 while still below the average of 16.5 in Bloomberg data dating back to 1954.
Mr. Doll, in a statement called “10 Predictions for the Next 10 Years,” also said that returns in stocks will likely outpace U.S. Treasuries and cash over the next decade. He predicted that the health-care, technology and alternative energy industries are poised for the best growth.
Mr. Doll’s prediction for 8.1% returns in the S&P 500 calls for an annualized price gain of 6.2% plus a dividend yield of 1.9%.