Buffett-style value investor Bill Smead believes that inflation is likely to increase in the next few years, leaving US stocks in a difficult situation similar to that of the 70s of the last century.
Bill Smead (Bill Smead), founder and CEO of asset management company Smead Capital Management and a Buffett value investor, said that for at least the next 10 years, US stocks will face a bleak payback period.
The extremely pessimistic chief investment officer has been warning about future stock market trends. In a recent letter to clients, he warned that continued inflation will seriously affect S&P 500 returns over the next few years.
“We don't expect the S&P 500 index to return anything for the next 10 to 15 years, and the era of inflation will continue,” Smid said.
In an earlier report, Smid compared the current macro environment to the situation in the 70s of the last century, when soaring inflation and high interest rates caused the stock market to enter a “dead ball” (“dead ball”) period. He wrote that the new era of inflation may cause the stock market to enter a similar period.
According to Smid, the “dead ball” period will last at least ten years, and the “dead ball” period will only end when the market's enthusiasm for the most expensive stocks wears off. Furthermore, this process may lead to losses equivalent to those during the Internet bubble and financial crisis, when stocks fell by double digits.
Due to the Federal Reserve's tightening of monetary policy, the US inflation rate has cooled sharply from a decades-long high. Consumer prices rose 3.4% year over year in April, but market commentators pointed out that this is still far above the Federal Reserve's long-term inflation target of 2%.
Smid said that inflation is likely to increase in the next few years, as part of the rise in prices is due to high levels of public debt. The size of the US federal debt is currently around $34.5 trillion.
“Over the years, we have had huge fiscal deficits, and there are three ways to balance the budget: cut budgets, raise taxes, or use depreciated dollars to repay debts, and eventually get out of trouble through inflation.” Smid said he later added that the first two options were unlikely to be realized due to political restrictions.
Other extremely pessimistic forecasters warn that the future path for US stocks is full of ups and downs, especially when the US is still likely to fall into recession within the next year. According to the latest forecasts by New York Federal Reserve economists, the probability of a recession by April 2025 is 50%.