[Asia Economy Reporter Byunghee Park] Bank of America (BOA) has released an analysis stating that the real returns of the U.S. stock market, adjusted for this year's inflation rate, are the lowest since 1947, Bloomberg reported on the 8th (local time).
In a report released that day, BOA's investment strategist Savita Subramanian said, "The real return of the S&P 500 index this year is -2.9%," adding, "The last time real returns were this low was in 1947." The year 1947 was during the presidency of Harry Truman, when the Cold War had just begun.
According to strategist Subramanian, there have been four occasions when the S&P 500 index recorded negative real returns, all shortly after World War II. Besides the post-World War II period, there was once in the 1970s during stagflation, once in the 1980s when the late Paul Volcker, Chairman of the Federal Reserve (Fed), sharply raised interest rates to curb inflation, and the last time was during the dot-com bubble.
Subramanian advised that during the previous four occasions when real returns were negative, the New York Stock Exchange entered a bear market, and investors should invest in safe assets that can hedge against inflation. She recommended assets such as energy, financials, and real estate as inflation hedges.
She also mentioned the current inflation rate of 6.2% and the expectation that it will slow to 2.5% in one year, cautioning that this might be an overly optimistic forecast. She added that a nearly 4% drop in inflation within one year would be the largest decline in inflation in 40 years.
The nominal return of the S&P 500 index this year is high. As of this day, the S&P 500 index has recorded a 25.2% increase this year. This is the third-highest return since the 2008 global financial crisis. The S&P 500 recorded returns of 29.6% and 28.9% in 2013 and 2019, respectively. The U.S. consumer price inflation rate reached 6.2% in October, the highest in 31 years.
While Goldman Sachs, JP Morgan Chase, and others have optimistic outlooks for the New York stock market next year, BOA has consistently released reports with negative forecasts for the U.S. and European stock markets next year.
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