This article on projecting the next decade’s returns by Ed Easterling of PE cycles fame, came out last November. While I often disagree with some of his solutions, he provides valuable insight into future returns.


  • GDP growth is fairly consistent at around 3%
  • Corporate earnings as a share of GDP tends to bounce between 6% and 14% of GDP and we are current at the top end of that spectrum
  • When inflation is low PE tends to be in the 20 to 25 range. As inflation rises PEs lower.
  • Goldilocks scenario (EPS stays at high end of GDP %, and PE is 23), 10 year stock market returns would be around 8.9%.
  • Every other scenario (e.g., PEs drop, or EPS as % of GDP drops) he presents has the stock market providing lower returns than bonds.

As a side note, most pensions assume a return of 8% in their projections. With a 60/40 portfolio, even a Goldilocks scenario will not get them their 8%. So I see increasing problems for defined benefit and government pensions over the next decade. And while taking alpha bets may solve the problem for some pensions, it is likely to deepen their problems for most.