Outlook 2022: Polar Opposites
There are three pillars of investing for us at Smead Capital Management. First, we must know the history of the stock market. Second, we must understand the mathematics of the stock market. Third, we must understand the psychology of the stock market. As we enter the year 2022, we believe the S&P 500 Index and the oil/gas Industry are at polar extremes on all three pillars.
The table below reports the latest values of the eight indicators reported each month by Mark Hulbert from Marketwatch.com. These are the eight ways of measuring ten-year forward return which have been statistically meaningful, according to his research. These regression modules have the best long-term records predicting the stock market’s 10-year returns. As you can see, it’s not just the average household’s equity allocation that is bearish about the stock market’s longer-term prospects.
Out of eight shots which demonstrate future 10-year returns, only a wild-eyed optimist below 40 years of age with a Robinhood trading account and a savings account loaded with “stimmy” checks would want to fight this statistical battle.
As you can see above, even if the regression analysis was in your favor, like in 1980, 1990 and 2010, owning the ten-largest-cap companies in the S&P 500 Index was a ticket to underperformance, and in many cases, stock market failure.