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New research uncovers the math behind stock returns and advises investors to prepare for shocks

Javier Estrada's latest study„Expected Stock Returns in Bullish Times" sheds light on the mathematical factors that influence stock returns - and explains why the current market exuberance should be viewed with caution.

By analyzing more than 150 years of US market data (1872-2024), Estrada has broken down annual returns into their main components: Dividend yield, earnings growth and changes in the price-to-earnings ratio. His findings show why the conditions for sustained above-average earnings rarely persist for long, especially after strong bull markets.

Lessons from bull markets throughout history

Estrada's analysis of the US market shows that periods of rapid earnings growth are rarely accompanied by a simultaneous expansion of price-to-earnings ratios. In fact, these two factors have exhibited a negative correlation over decades (correlation coefficient of -0.5) - meaning that investors do not simultaneously drive up valuations during periods of rapid earnings growth and vice versa. This relationship becomes particularly critical when markets reach extreme valuations, as was the case both in the late 1990s and in the current situation.

His analysis shows that the current market situation - high price-to-earnings ratios, low dividend yields and optimism driven by recent returns - bears some similarities to the situation in 1999. Back then, the S&P 500 posted impressive gains, but valuations reached unsustainable levels. When the reversion to the mean finally began, returns over the following decade were disappointingly low (just 0.1% annualized before inflation

Why high returns are harder to sustain

Estrada's modeling shows that the expectation of high future returns in exuberant markets requires at least one of two conditions: extremely rapid earnings growth or a sharp widening of price-to-earnings ratios, or both. History shows that these conditions are rarely met simultaneously - expecting them now is increasingly unrealistic.

When fundamentals such as earnings and dividends return to their long-term averages, future returns will fall.

Estrada estimates that if fundamentals normalize, annualized returns of around 0.4% could be achieved over the next ten years.

Key findings for investors:

Valuation before extrapolation

What is the actionable advice for retail investors?

Estrada's work calls for a readjustment of expectations:

• Please be prepared for lower stock market returns over the next ten years, especially if reversion to the mean occurs.
• Avoid recency bias - the urge to believe that a recent strong performance will continue indefinitely.
• Prioritize fundamental valuations (dividend yield, earnings growth rate, price-to-earnings ratios) over tracking performance.
• Consider a more conservative allocation to equities and diversify your exposure to other risk assets such as private credit, infrastructure, real estate and market neutral long-short strategies, such as those used by AQR Style Premia Alternative QSPRX for example.

Estrada's analysis of equity returns over a 150-year period conveys a clear message: the higher markets go, the less likely it is that all factors affecting returns will remain positive. The negative correlation between earnings growth and P/E expansion means that both factors rarely increase returns simultaneously over long periods of time.

Today's market environment of expensive stocks and low yields presents a major challenge to sustaining recent gains. A perfect (and historically rare) combination of rising earnings and multiplying valuations would be required to justify optimistic forecasts.

Rather than speculating about the right time, Estrada recommends paying close attention to valuations and preparing portfolios for lower returns. Reversion to the mean - the tendency of markets to revert to historical averages - is one of the most enduring features of the stock market. Investors who heed these lessons will be far better positioned to weather the eventual turn in the cycle

For investors, the message is clear: base your expectations on historical data, not hopes. Strong bull markets will eventually be replaced by periods of moderate or even negative returns - and preparing for this change is a sign of discipline.

Own assessment:

Admittedly, this is not an entirely new insight for informed and aware investors. In view of the current market conditions, however, I wanted to share the summary of the study with you in order to provide new market participants in particular with an analytical and long-term (150-year) orientation.

The author(s) do not own shares in the securities mentioned in this article. Find out more here Redaktions-Richtlinien von Morningstar.

Larry Swedroe is a freelance writer. The opinions expressed here are the author's. Morningstar values diversity of thought and publishes a broad range of viewpoints.

Source

https://global.morningstar.com/de/maerkte/anleger-aufgepasst-bullenmrkte-dauern-nicht-ewig?utm_source=eloqua&utm_medium=email&utm_campaign=Germany_Weekly&utm_content=None_69633&utm_id=36229

Hello my dears,

a short UPDATE.

In a correction, my growth portfolio often underperforms the comparable market.

This was also the case in November.

Perhaps I am not yet conservative enough here, especially when it comes to a bear market.

What do you think?

Because I have usually performed better than the comparable market in strong months.

I am still better than the market YTD.

The tops and flops are attached.

With the tops you can see that Pharma has run.

The reason at Googel should be known.

At Albemarle, the rise in lithium prices

With the flops

were the earnings at elf Beauty,

the AI correction at Innodata,

at AeroVironment a correction of the defense values (peace negotiations)

the capital increase at Kitron,

November performance

Tenbagger - 4.58 %

Core S & P 500 ETF $CSPX (-0,16%) - 0,47 %

NASDAQ 100 ETF $CSNDX (-0,13%) - 2,27 %

World ETF $IWDA (+0,02%) - 0,36 %

YTD Performance

Tenbagger + 11.17 %

S & P 500 ETF $CSPX (-0,16%) + 3,49 %

NASDAQ 100 ETF $CSNDX (-0,13%) + 6,79 %

World ETF $IWDA (+0,02%) + 5,87 %

My ETF strategy: 3 ETFs as the core for long-term success

After a lot of thought, I have decided to make some changes. I have decided to split my monthly investments into three ETFs that offer a mix of growth, stability and income potential. From now on, I will invest €1000 per month in these three ETFs, with all dividends being automatically reinvested to maximize the compound interest effect.

1.

Fidelity Global Quality Income $FGEQ (-0,22%)

This ETF focuses on high-quality companies worldwide that pay stable dividends. It provides regular income streams and is less volatile than growth stocks. As I am looking for solid passive income over the long term, this ETF is an important part of my portfolio. All dividends from this ETF are reinvested to further grow the capital.

2.

VanEck Developed Markets Dividend $TDIV (-0,84%)

Similar to the Fidelity ETF, this one invests in high-dividend companies, but focuses on developed markets. The VanEck ETF helps me to diversify my portfolio even more broadly and ensures regular distributions, which are also reinvested. This allows me to use the dividends as a growth driver without them weighing on the portfolio.

3.

Nasdaq 100 ETF $CSNDX (-0,13%)

The Nasdaq 100 is my growth driver. It invests in the largest technology and growth companies in the US, which gives me strong leverage to the technology and innovation sector. While the Nasdaq 100 is more volatile than the S&P 500, the potential returns from the tech sector can be very rewarding over the long term. Again, all dividends are automatically reinvested to further increase the growth rate.

My strategy

With this combination of dividend and growth ETFs, I am aiming for a balanced portfolio that offers both stable income and long-term growth. I focus on a long-term investment strategy that grows regularly with monthly investments of €1000. The automatic reinvestment of dividends is intended to maximize the compound interest effect and thus allow the portfolio to grow continuously over the years.

Asia and emerging markets via individual shares

As I want to invest specifically in the Asian and emerging markets, I plan to cover the corresponding proportion via individual shares. I want to focus on high-quality companies that are growing strongly in these regions and offer good long-term earnings opportunities. My favorites: $6861 (-0,59%)
$TKOMY
$1211 (-1,77%)
$FLXI (-1,15%)

Individual shares - focus on quality

I currently own a lot of individual shares (some bought without a plan) and plan to reduce these to a maximum of 20 strong quality shares. I want to consolidate my portfolio and only invest in companies that have high growth and earnings potential and are robust enough to perform well even in difficult market phases.

Conclusion:

With this strategy of the 3 ETFs as core and a careful selection of 20 strong individual stocks, I want to build a well-diversified portfolio that not only provides stable income, but also benefits from global growth in the long term. By regularly investing €1000 per month and reinvesting all dividends, I aim to continuously grow my portfolio and achieve long-term financial security.

I would be delighted to hear your thoughts on my new strategy!

Have a great evening and a successful start to the new week!

LG your Max

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https://www.whitehouse.gov/fact-sheets/2025/11/fact-sheet-president-donald-j-trump-strikes-deal-on-economic-and-trade-relations-with-china/

President Trump announced an economic and trade agreement between the USA and China:

- China suspends all retaliatory tariffs and non-tariff measures imposed since March 4

- China issues new general licenses for the export of rare earths and suspends new export controls.

- China pledges to stop the flow of fentanyl to the US

- China will buy at least 12 million tons of US soybeans

- The USA reduces tariffs on Chinese goods by 10 percentage points

The biggest de-escalation in relations between the US and China since the start of the trade war.

China 🇨🇳 will suspend all retaliatory tariffs and non-tariff measures in place since March 4, lift export controls on rare earths, issue global licenses for rare earths and critical minerals such as gallium and graphite, and commit to buying 12 million tons of US soybeans this year and 25 million tons annually through 2028. China will also take "significant measures" to stop fentanyl shipments to the US.

In return, the U.S. 🇺🇸 will reduce tariffs on Chinese imports imposed to curb fentanyl trade by 10 percentage points of the cumulative tariff rate, effective November 10, 2025, extend Section 301 tariff exemptions through November 2026, and suspend new export control measures for one year.

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President Trump shakes hands with Chinese President Xi Jinping.

"He is a VERY tough negotiator. That's not good!" 🤣

"Nice to see you again!"

"We're going to have a very successful meeting!"

"We have ALWAYS had a great relationship."

Chinese President Xi Jinping says he is happy to finally meet President Trump.

"It's very nice to see you again! It's been many years. Since your re-election, we have spoken on the phone three times, exchanged several letters and stayed in close contact."

"Given our different national circumstances, we don't always see eye to eye. It's normal for there to be friction between the world's two leading economies."

"In the face of winds, waves and challenges, you and I, who are at the helm of Sino-US relations, should stay the right course and ensure the steady progress of these relations."

Chinese President Xi Jinping declares President Trump the PEACE PRESIDENT of the whole world!

"Mr. President, you care deeply about world peace! You are deeply committed to resolving regional conflicts. I greatly appreciate your significant contribution to the ceasefire in Gaza."

"During your visit to Malaysia, you witnessed the signing of the joint peace declaration along the Cambodian-Thai border, to which you also contributed."

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CPI 3% YoY, (Est. 3.1%)

CPI 03% MoM, (Est. 0.4%)

Core CPI 3% YoY, (Est. 3.1%)

Core CPI 0.2% MoM, (Est. 0.3%)