GMO argues investors chasing recent U.S. equity dominance may be extrapolating unusually strong S&P 500 performance into the future. The paper contends elevated valuations, profit margins, and historical mean reversion could pressure long run returns, despite the index compounding 173% over the previous seven years.
The S&P 500: Just Say No
GMO
Matt Kadnar, James Montier
Research
12 Pages
Key Takeaways
Performance Gap Widens: Over 7 years, the S&P 500 gained 173% versus 71% for MSCI EAFE and 30% for MSCI Emerging Markets.
Dividends Drive Returns: Since 1970, dividends contributed 3.4% of annual real returns, while P/E expansion added just 0.1%, challenging narratives built on multiple expansion.
Margins May Normalize: Real S&P 500 returns averaged 6.3% since 1970, with profit margin expansion contributing only 0.5%, suggesting profitability tailwinds may be less durable than assumed.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
Related Content
