Thesis for 500 percent gain in stocks in next 5 years
Where do you think QQQ will be in the next five years?
Not being equity focused in my professional life and looking from the sidelines, it appears to me that stocks have shown tremendous amount of resilience over the past few years. QQQ has gained 80 percent since Jan 2020, and that occured during the a terrible pandemic and war in Europe.
From my prospective as a naive investor, was it not for those macro factors, the potential gains could have been significantly higher (think 200-300 pct over 3 year span, which roughly translates to 500 percent in 5 years). Does that set a bullish tone for the next five years? With the recent invention of large language models and AI and concentration into larger companies, can we see big gains for the next five years in any reasonable base case scenario?
I am somewhat of an optimist, but come on you cannot think 2020 was a fantastic year hampered by COVID. That is not true, COVID helped immensely with an astonishing level of QE much higher than 2008 (for something that was a hot taboo 15 years ago, quite impressive). We had a massive asset bubble for crying out loud, just look at 2020-2022. Currently we may have higher interest rates for longer. Besides, rates were artificially low, we probably won’t see that again for quite some time.
Anyway, why not 600, 800, 1000%? Where are you getting the 500% growth in 5 years? 500% growth is 49.5% CAGR. This is a mind-boggling assumption. QQQ has never even managed 50% back-to-back. QQQ performance: 1y = 30.21%, 3y = 14.83%, 5y = 17.41%.
Are you saying the performance over the past few years was primarily driven by easy money and that is unlikely to materialize in the new future, therefore base case for stocks is their historical long term performance? If inflation gets under control why wouldn't fed be cooperative?
Are you sure you work at an HF?
The economy will be booming within a few months. I can feel it.
The invisible hand of the market has begun cupping my balls instead of squeezing them, so definitely a positive omen
wtf 😂
I generally think these long term forecasts are kind of useless and aren't great predictors, but I'll throw in some comments on general stuff I have thought about "big picture" wise.
Lets take an even bigger step back here and think about the environments that have been conducive to equity market returns, and reverse back to the beginning of the 1980s. Starting point was low valuations, high inflation/real rates, high taxes, high regulations, low corporate margins, low leverage, low levels of population invested in equities, the beginning of a massive push towards favorable capitalistic policies (Reagan), increase in globalization, end of cold war, etc. What followed was an amazing expansion in prosperity and equity market returns, probably annualized around 8-9% through 2020 or something.
Flash forward to today's starting point: high valuations (somewhat), low interest rates/inflation (relatively), rising taxes, increasing regulation, record high margins, higher levels of leverage, higher % of individuals invested in equities, increasing anti-capitalistic sentiment, increasing de-globalization / re-globalization (kind of offsets?) + increasing geopolitical tensions. Also record levels of government debt. Generally, seems like a tougher makeup for the long term expected equity market returns and economy in general. I am broadly generalizing here, but just some stuff to think about.
When taking a closer look, the biggest conversation is really around what the future normalized rate environment looks like, as we had years of basically near zero rates subsidizing equity investments and cheap debt. On top of that, per the other poster, an extremely accommodative policy in 2020 subsidized massive amounts spending and drove up demand - all of this is finally unwinding. Yes there is also a lot of narrowness in the markets, but the other side is that the leading companies today (top 10 market cap businesses) are exceptionally strong and resilient, and generate a tremendous amount of cash flow - this isn't 2000 where no one knew how these businesses would monetize the internet. The AI part is a mix of both reality and speculation/fantasy, and its still quite early to determine everything here.
I don't have great conviction one way or another as there are a lot of puts and takes, but I think it would be incorrect to characterize today as a continuation of the dynamics we saw pre COVID and immediately following COVID. As such I can only offer some trite conclusions. History doesn't repeat itself, but it tends to rhyme. We are probably entering the cusp of a new market environment/paradigm, and it would be imprudent to assume that assets + the markets will behave like they have over the last few years/decade.
If AI is part fantacy and it's too early to know its real effect on businesses, that appears to me to be a major risk to equities going forward. Think of MSFT etc adding $1T in market cap and seeing massive multiple expansions, that has to be due to a clear roadmap to significant revenue streams, otherwise it's 2000 all over again?
Wrong forum bro. Go to Seeking alpha.
The only way this happens is hyperinflation. Venezuela had crazy stock market returns…
Not too surprised to see some of these negative comments. Some people are just eternal bears hoping for a market crash fast enough for everyone to freak out and liquidate, yet slow enough for them to sit pretty and take their time to get in and enjoy the run back up.
This pretty much sums up this entire forum. Despite being full of "finance professionals," they all have the same opinions as random anon retail accounts on Twitter. Everyone was extremely bearish on here 6 months ago trying to rationalize their bearishness with recent data on inflation, earnings, yield, margins, etc as if that's how the market operates at all. Sentiment and positioning...
I have been in the industry long enough to know that anybody who claims to understand how the market operates, lacks a basic understanding of probabilities and randomness. Randomness is a very tough thing to get.
If you think the QQQ will yield a 50% CAGR in the next 5 years, when it has NEVER yielded that in its history, and the extremely high probability we may not see an artificially low interest rate environment + high cash in circulation scenario, this isn’t being bullish, it is being delusional.
It very well could, but it is extremely unlikely. I am not dissing bullishness, I am dissing the absurd projection that was based on nothing more than liking the number 500.
Anyway, you’re simply generalizing all negative comments. I wasn’t even here 6 months ago, and even I said the same tune, guess what? This projection is still BS given current data
Until my uber drivers stop trading crypto, we're nowhere near a new bull market.
😂😂😂
Too many people rely on multiples - I am a strong believer in forecasting cash flows far out, while they are no doubt going to be mostly wrong, it forces you to think of the business and the many different levers / understand your own assumptions. But by doing so, you can establish confidence intervals where you think value lies, rather than blindly saying something is cheap or expensive relative to history, which can be a problem in different regime changes.
You will never see another move like the one after COVID, ever. That is, unless the government makes interest rates 0% and prints a f*ck load of free money for people to put the economy on steroids again.
AI and these new language models are good catalysts and will make companies innovative but they won’t make Apple or Microsoft go 500%
Indexes/ETFs like the QQQ and SPX do not accurately represent the performance of the stock market since a majority of the returns are derived from the “magnificent 7.”
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