Posted by Brad McMillan. Yesterday, I received a question from Joe Esposito that touches on some very relevant demographic-related issues:. Just curious on your take regarding his demographic viewpoints and positioning with booms and busts. Highs are higher and busts will be lower than that last. Harry Dent is a noted market predictor who bases much of his analysis on demographics. Intuitively, and for the reasons I discussed a couple days ago , this makes sense.

The economy is people, and demographics is the science of people. The problem is that the connections are both loose and uncertain, so making those predictions is somewhat fraught. Dent here, but given his track record, I would be hesitant to put too much money into his current predictions. His prediction for the 40, Dow was based on the very favorable demographic trends he saw in the mids. Forecasting markets based on demographics is tricky.

At the same time, it would be a mistake to disregard the message because of the messenger.

There are reasons to be concerned about market valuations , as I've noted many times before. This is somewhat below the minimum level of reached in the great financial crisis, so there is certainly historical precedent. First of all, using current earnings, such a decline would be an outstanding buying opportunity.

At , the price-to-earnings ratio would be about 6. Put another way, the earnings yield the amount of money that companies make each year as a percentage of the stock price would be over 15 percent, the highest level since the late s, or before that, What would that mean for investors?

At current valuations, history shows that forward returns, over the next 5 to 10 years, are typically in the low single digits—maybe 4 percent to 5 percent per year. At the lower value of , forward returns have historically been in the range of around 15 percent. For those now investing in the market, any such decline would be a major buying opportunity, a chance to get an extra 10 percent per year on average on their investments.

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For anyone now retired, or close to it, it would be a disaster, pretty much blowing up retirement plans in most portfolios. Clearly, the risk is what we have to focus on here.

Demographics and Stock Market Valuations

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Demographics and Stock Market Valuations Posted by Brad McMillan Find me on: Yesterday, I received a question from Joe Esposito that touches on some very relevant demographic-related issues: First, how do demographics affect stock market returns?

Second, are we positioned for a crash in the next couple of years? How reliable are market forecasts based on demographics? From , that the Dow would hit 40,?

From , that the Dow would hit 14, by year-end? From , that the Dow would go to 20,?

Attention, Demographics, and the Stock Market

Or his prediction that the Dow would be at 3, in ? A major market decline not out of the question At the same time, it would be a mistake to disregard the message because of the messenger.

For investors, opportunity; for retirees, disaster First of all, using current earnings, such a decline would be an outstanding buying opportunity. In The News Back Where We Started: Archives June 17 May 22 April 21 March 23 February 21 January 22 December 22 November 23 October 23 September 22 August 21 July 23 June 24 May 22 April 25 March 24 February 23 January 20 December 24 November 22 October 25 September 22 August 23 July 25 June 25 May 23 April 23 March 23 February 22 January 21 December 25 November 19 October 26 September 22 August 24 July 24 June 24 May 25 April 23 March 24 February 20 January 23 December 23 November 24 October 27 September 23 August 26 July 23 June 22 May 26 April 24 March 24 February 20 January 30 December 34 November 39 October 42 September 36 August 30 July 31 June 18 see all.