Predictor of Future Stock Market Returns’

The stock market’s 10-year return potential is better now than it was at the end of 2019. The improvement traces to a reduction in the share of households’ financial assets that are invested in stocks. Household equity allocation is a contrarian indicator, inversely correlated with the stock market’s return over the subsequent 10 years. Credit for coming up with this indicator goes to the anonymous author of the Philosophical Economics blog, who a number of years ago dubbed it the “Single Greatest Predictor of Future Stock Market Returns.”