Keep in mind, household equity allocations at these levels average 10 -
year subsequent returns in the neighborhood of 3.7 % annualized.
And we had scatter diagrams, showing 10 -
year subsequent returns against the CAPE, what we call the cyclically adjusted price earnings ratio.
Not exact matches
Further, looking across all eight past instances, the BBIT has provided an average
return of 6.32 % over the
subsequent year, according to the firm.
«Historically, strong
returns tend to be followed by strong
returns in the
subsequent year,» Credit Suisse's Jonathan Golub said.
Actual results, including with respect to our targets and prospects, could differ materially due to a number of factors, including the risk that we may not obtain sufficient orders to achieve our targeted revenues; price competition in key markets; the risk that we or our channel partners are not able to develop and expand customer bases and accurately anticipate demand from end customers, which can result in increased inventory and reduced orders as we experience wide fluctuations in supply and demand; the risk that our commercial Lighting Products results will continue to suffer if new issues arise regarding issues related to product quality for this business; the risk that we may experience production difficulties that preclude us from shipping sufficient quantities to meet customer orders or that result in higher production costs and lower margins; our ability to lower costs; the risk that our results will suffer if we are unable to balance fluctuations in customer demand and capacity, including bringing on additional capacity on a timely basis to meet customer demand; the risk that longer manufacturing lead times may cause customers to fulfill their orders with a competitor's products instead; the risk that the economic and political uncertainty caused by the proposed tariffs by the United States on Chinese goods, and any corresponding Chinese tariffs in response, may negatively impact demand for our products; product mix; risks associated with the ramp - up of production of our new products, and our entry into new business channels different from those in which we have historically operated; the risk that customers do not maintain their favorable perception of our brand and products, resulting in lower demand for our products; the risk that our products fail to perform or fail to meet customer requirements or expectations, resulting in significant additional costs, including costs associated with warranty
returns or the potential recall of our products; ongoing uncertainty in global economic conditions, infrastructure development or customer demand that could negatively affect product demand, collectability of receivables and other related matters as consumers and businesses may defer purchases or payments, or default on payments; risks resulting from the concentration of our business among few customers, including the risk that customers may reduce or cancel orders or fail to honor purchase commitments; the risk that we are not able to enter into acceptable contractual arrangements with the significant customers of the acquired Infineon RF Power business or otherwise not fully realize anticipated benefits of the transaction; the risk that retail customers may alter promotional pricing, increase promotion of a competitor's products over our products or reduce their inventory levels, all of which could negatively affect product demand; the risk that our investments may experience periods of significant stock price volatility causing us to recognize fair value losses on our investment; the risk posed by managing an increasingly complex supply chain that has the ability to supply a sufficient quantity of raw materials, subsystems and finished products with the required specifications and quality; the risk we may be required to record a significant charge to earnings if our goodwill or amortizable assets become impaired; risks relating to confidential information theft or misuse, including through cyber-attacks or cyber intrusion; our ability to complete development and commercialization of products under development, such as our pipeline of Wolfspeed products, improved LED chips, LED components, and LED lighting products risks related to our multi-
year warranty periods for LED lighting products; risks associated with acquisitions, divestitures, joint ventures or investments generally; the rapid development of new technology and competing products that may impair demand or render our products obsolete; the potential lack of customer acceptance for our products; risks associated with ongoing litigation; and other factors discussed in our filings with the Securities and Exchange Commission (SEC), including our report on Form 10 - K for the fiscal
year ended June 25, 2017, and
subsequent reports filed with the SEC.
Hailey's chaotic Rikers stint and
subsequent struggle to
return to society was documented earlier this
year by The Associated Press.
Normalized P / E - our preferred valuation metric - has explained 80 - 90 % of
returns over the
subsequent 10 - 11
years.»
Normalized P / E — our preferred valuation metric — has explained 80 - 90 % of
returns over the
subsequent 10 - 11
years.»
«Valuations have historically explained 60 - 90 % of
subsequent returns over a 10 -
year horizon.
«We find no relationship between historical five -
year returns and
subsequent 12 - month
returns,» Bank of America Merrill Lynch's Savita Subramanian wrote.
The blue line shows the same 10
year treasury yield from the WSJ chart, while the red line shows the
subsequent one
year total
return on the 10
year bond.
As we've noted previously, MarketCap / GVA has a correlation of about 92 % with actual
subsequent 10 -
year S&P 500 total
returns, even in recent market cycles.
The present level is associated with zero
subsequent 10 -
year returns — with no alternate outcomes.
Yet the fact that these 13
years have included three successive approaches (2000, 2007, and today) to valuation peaks - at the very extremes of historical experience - is evidence that investors don't appreciate the link between valuation and
subsequent returns.
If one creates as scatter plot of the Shiller P / E versus actual
subsequent 10 -
year market
returns, one gets a nice scatter, but a good deal of noise as well.
As we've demonstrated repeatedly, the valuation measures most strongly correlated with actual
subsequent returns, particularly over a 7 - 15
year horizon, are those that normalize for profit margin variability in some way.
As a result, starting valuations, on historically reliable measures, are 90 % correlated with actual
subsequent 10 -
year total market
returns.
The following chart shows the same data on an inverted log scale (blue line, left), along with the actual
subsequent 12 -
year nominal average annual total
return of the S&P 500 Index (red line, right).
The red line (right scale) is the average annual nominal total
return of the S&P 500 over the
subsequent 12 -
year period.
At present, the valuation measures we find most strongly correlated with actual
subsequent S&P 500 total
returns suggest zero total
returns for the S&P 500 over the coming 10
years, and total
returns averaging only about 1 % annually over the coming 12 -
year period.
Last week, the U.S. equity market climbed to the steepest valuation level in history, based on the valuation measures most highly correlated with actual
subsequent S&P 500 10 - 12
year total
returns, across a century of market cycles.
The only alternative to this view is to imagine that the collapses that followed valuation extremes like 1929, 1973, 2000, and 2007 somehow emerged entirely out of the blue, ignoring the fact that valuations accurately projected likely full - cycle losses, and remained tightly correlated with total
returns over the
subsequent 10 - 12
year horizons.
The red line shows the actual total
returns for this portfolio mix over the
subsequent 12 -
year period.
-LSB-...] table below is from Ben Carlson's A Wealth of Common Sense and it is a summary of the
subsequent average, median, high, and low 10 -
year returns for the -LSB-...]
Indeed, even Robert Shiller's cyclically - adjusted P / E (CAPE) is much better correlated with actual
subsequent market
returns, across a century of market cycles, when we account for the profit margin embedded in the 10 -
year average of earnings.
So investors might have believed that the extraordinarily depressed market valuations of 1974 and 1982 were «justified» by recession and high interest rates, but that did nothing to prevent the S&P 500 from enjoying remarkably high
returns in
subsequent years.
The mapping between valuations and
subsequent returns is typically most reliable over a 10 - 12
year horizon.
Actual results may vary materially from those expressed or implied by forward - looking statements based on a number of factors, including, without limitation: (1) risks related to the consummation of the Merger, including the risks that (a) the Merger may not be consummated within the anticipated time period, or at all, (b) the parties may fail to obtain shareholder approval of the Merger Agreement, (c) the parties may fail to secure the termination or expiration of any waiting period applicable under the HSR Act, (d) other conditions to the consummation of the Merger under the Merger Agreement may not be satisfied, (e) all or part of Arby's financing may not become available, and (f) the significant limitations on remedies contained in the Merger Agreement may limit or entirely prevent BWW from specifically enforcing Arby's obligations under the Merger Agreement or recovering damages for any breach by Arby's; (2) the effects that any termination of the Merger Agreement may have on BWW or its business, including the risks that (a) BWW's stock price may decline significantly if the Merger is not completed, (b) the Merger Agreement may be terminated in circumstances requiring BWW to pay Arby's a termination fee of $ 74 million, or (c) the circumstances of the termination, including the possible imposition of a 12 - month tail period during which the termination fee could be payable upon certain
subsequent transactions, may have a chilling effect on alternatives to the Merger; (3) the effects that the announcement or pendency of the Merger may have on BWW and its business, including the risks that as a result (a) BWW's business, operating results or stock price may suffer, (b) BWW's current plans and operations may be disrupted, (c) BWW's ability to retain or recruit key employees may be adversely affected, (d) BWW's business relationships (including, customers, franchisees and suppliers) may be adversely affected, or (e) BWW's management's or employees» attention may be diverted from other important matters; (4) the effect of limitations that the Merger Agreement places on BWW's ability to operate its business,
return capital to shareholders or engage in alternative transactions; (5) the nature, cost and outcome of pending and future litigation and other legal proceedings, including any such proceedings related to the Merger and instituted against BWW and others; (6) the risk that the Merger and related transactions may involve unexpected costs, liabilities or delays; (7) other economic, business, competitive, legal, regulatory, and / or tax factors; and (8) other factors described under the heading «Risk Factors» in Part I, Item 1A of BWW's Annual Report on Form 10 - K for the fiscal
year ended December 25, 2016, as updated or supplemented by
subsequent reports that BWW has filed or files with the SEC.
Actual
subsequent 12 -
year S&P 500 nominal total
returns are plotted in red (right scale).
Among these, the ratio of nonfinancial market capitalization to corporate gross value - added has the strongest correlation (about -93 %) with
subsequent 12 -
year S&P 500 total
returns.
Valuations in 1949 and 1982 were like paying $ 13.70 for the future $ 100 cash flow, as valuations were consistent with
subsequent annual S&P 500 total
returns averaging 18 % over the following 12 -
year period.
While other historically reliable metrics carry a very similar message, Market Cap / GVA has the highest correlation with actual
subsequent 10 -
year S&P 500 total
returns than any other valuation ratio we've examined across history.
Don't criticize historically reliable valuation measures that have maintained the same tight relationship with actual
subsequent 10 - 12
year market
returns that they've demonstrated across a century of history.
1954 and 1992 were like paying $ 25.60, and were followed by 12 % annual S&P 500 total
returns over the
subsequent 12 -
year period.
When the CAPE reached its highest level ever, 45, during the tech bubble the
subsequent 10 -
year returns were negative.
For example, our effort to carefully account for the impact of foreign revenues, and to create an apples - to - apples measure of general equity valuation led us to introduce MarketCap / GVA, which is better correlated with actual
subsequent 10 - 12
year market
returns than any of scores of measures we've studied.
Indeed, adjusting for that embedded profit margin boosts the correlation with
subsequent 10 - 12
year returns to nearly 90 %.
Essentially, Selsick examined the Shiller P / E (the S&P 500 divided by the 10 -
year average of inflation - adjusted earnings), and showed that the multiple is even better correlated with actual
subsequent S&P 500 total
returns using 16 -
year smoothing and a 16 -
year investment horizon.
Selsick estimates the relationship between the Shiller - 16 and
subsequent 16 -
year total
returns in the S&P 500, and arrives at a 16 -
year estimate of prospective nominal
returns of 4.94 % annually.
On the basis of the most reliable valuation measures we identify (those most tightly correlated with actual
subsequent 10 - 12
year S&P 500 total
returns), current market valuations stand about 140 - 165 % above historical norms.
The chart below shows this relationship using market capitalization to corporate gross value added (blue, on an inverted log scale) versus actual
subsequent 12 -
year S&P 500 nominal total
returns (red).
Here's a chart from a recent Weekly Market Comment showing the projections for 10 -
year annual total
returns on the S&P 500 versus actual
subsequent 10 -
year total
returns:
Based on the valuation measures most strongly correlated with actual
subsequent total
returns (and those correlations are near or above 90 %), we continue to estimate that the S&P 500 will achieve zero or negative nominal total
returns over horizons of 8
years or less, and only about 2 % annually over the coming decade.
Last week, the most historically reliable equity valuation measures we identify (having correlations of over 90 % with actual
subsequent 10 - 12
year S&P 500 total
returns) advanced to more than double their reliable historical norms.
The red line is the actual
subsequent 10 -
year return earned by holding this particular policy portfolio.
On valuation measures most strongly correlated with actual
subsequent S&P 500 nominal total
returns, we presently expect negative total
returns for the S&P 500 on a 10 -
year horizon, and total
returns averaging only about 1 % annually over the coming 12 -
year period (chart).
U.K. February mortgage data also showed an annual decline of 5.6 percent for approvals with analysts at Jefferies saying they anticipate a further fall in March given difficult to match comparable figures from last
year before an improvement in trends
returns in
subsequent quarters.
On the basis of valuation measures most tightly related to actual
subsequent long - term market
returns, we also estimate that the S&P 500 is likely to be lower 12
years from now, compared with current levels, though dividend income may push the total
return just over zero on that horizon.
The average correlation between these estimates and
subsequent 10 -
year S&P 500 total
returns is 84 %.
Looking back through history, whenever value stocks have gotten this cheap,
subsequent long - term
returns have generally been strong.3 From current depressed valuation levels, value stocks have in the past, on average, doubled over the next five
years.4 Not that we necessarily expect
returns of this magnitude this time around, but based on the data and our six decades of experience investing through various market cycles, we believe the current risk / reward proposition is heavily skewed in favor of long - term value investors.