A team of JPMorgan securities analysts said that millennials and Gen Z may not enjoy the strong returns from the US stock market that their parents and grandparents did, which helped to enrich the retirement accounts of the previous generation.

According to a team of strategists at JPMorgan who focus on long-term market performance, the average annual return of the S&P 500 index may decline to 5.7% over the next ten years, which is roughly half of the return rate since the end of World War II.

Their argument is mainly based on mathematical calculations. The current valuation of the US stock market is relatively high compared to historical levels, primarily due to the performance of a few large stocks, such as the members known as the 'fabulous seven.'

A large amount of historical data shows that valuations tend to return to their average levels in the long term, which means that the future returns of the US stock market will decrease.

The current price-to-earnings ratio of the S&P 500 is 23.7 times, which is about 25% higher than its 35-year average of 19 times. Another valuation indicator used by the team is Robert Shiller's cyclically adjusted price-to-earnings (CAPE) ratio, which shows that the current valuation of the US stock market is even higher.

Strategists Jan Loeys and Alexander Wise wrote in the report, 'The price-to-earnings ratio may decrease as the aging population leads to a decreasing allocation of US stocks by the baby boomer generation, which currently is at a historical high, in line with their shrinking investment horizon.'

But there are also other issues that could negatively impact future returns in the US stock market.

The team also questioned whether the company can continue to grow after the record expansion during the COVID-19 pandemic.

Since the early 1990s, the growth of globalization and market concentration has helped profit growth exceed economic growth, partly due to generous corporate tax breaks. However, as the US is eager to reduce budget deficits, tax rates may increase.

Although there is not yet much evidence to suggest that taking action against the largest companies would be beneficial for politicians, the team points out that the US government has strengthened its antitrust actions in recent years.

If these efforts make progress, the government's antitrust efforts may undermine the dominant position of some of the largest tech giants, potentially weakening their already relatively high valuations compared to historical standards.

Strategists also mentioned that the increasing political instability in the US and de-dollarization may erode equity returns in the long term. However, so far, the impact of these two factors on the market is not significant.

In fact, the US market has shown remarkable resilience to the rising government budget deficits. However, this situation may change in the next five to ten years, as foreign investors' enthusiasm for US dollar-denominated assets may weaken.

The team included a caveat in their analysis conclusion: their observations are only useful in the long term and should not be used for market timing. The analysts wrote, "Valuations are very good in informing us about long-term returns, but they are quite bad at giving a clear direction, whether up or down, in the short term."

Editor/Lambor