Published March 27, 2026
For many years, we have read that “the coming decade for stocks will offer little or no return!”. That has certainly not been the case as stocks have generally risen strongly over the past decade. Further, even if stocks did find their way to another “lost decade” of zero net return over many years, we know from experience that getting to that zero return usually includes prolonged swings up and down. This market behavior is one reason we believe in trend-following, letting the market dictate its direction and investing accordingly. In this way, we have the opportunity to profit in both rising and falling markets.
Mark Hulbert’s note below suggests a long-term bearish indicator for the stock market has reached “peak bearishness.” again suggesting that upcoming stock markets returns will not be great. Time will tell, of course, and our model will continue trying to put us in a profitable position regardless of the market’s direction.
“The stock-market-timing indicator with the best long-term predictive record has just risen to its highest — and most bearish — level ever.
I’m referring to the average U.S. household’s allocation to U.S. stocks, an indicator described in December 2013 by the anonymous author of the “Philosophical Economics” blog. It was dubbed, with much justification, the “Single Greatest Predictor of Future Stock Returns.”
The indicator is calculated from data included in the U.S. Federal Reserve’s Financial Accounts of the United States, which is updated quarterly with a several-week lag. The latest quarterly update was released on March 19, reflecting data through Dec. 31 — notably, before the Iran conflict began.
The indicator is interpreted in a contrarian way, with higher values showing lower subsequent returns, and vice versa. The most recent Fed data show that the average U.S. household allocates 55.1% of its investment portfolio’s net worth to equities — a record high, more than two standard deviations above its nearly 80-year-old average of 36.3%.
The chart above plots this indicator along with the S&P 500’s annualized real total return over the subsequent decade. To reflect the indicator’s contrarian significance, the right scale on which it is plotted is inverted.
The correlation between the chart’s two data series is higher than for any other indicator that I know of: its R-squared (a measure of the degree to which the one data series explains or predicts the other) is a statistically significant 0.60.
To put that in context, most of the patterns that capture investors’ attention have “R-squared”s of less than 0.10 — if not zero.
The Single Greatest Predictor works because retail investors — as represented by the average U.S. household — are typically the last to turn bullish before a bull market reaches its apex and a bear market begins. This nearly universal market-cycle pattern typically unfolds this way: Professional and institutional investors turn positive on stocks at the beginning of a bull market, gradually unloading their appreciated equities to more gullible retail investors near the end of the uptrend.
To be sure, the predictor is not a short-term market-timing tool; its greatest explanatory power exists at the 10-year horizon. So its current record-bearish status doesn’t necessarily imply that a bear market is imminent. But if the future is like the past, the U.S. stock market, after adjusting for inflation, will be lower a decade from now.
Other valuation indicators confirm
Adding weight to this bearish forecast is the equally bearish messages of 10 other valuation indicators that I periodically update in this space. Each of them listed in the table below was chosen for its statistically significant track record predicting the stock market’s real total return over the subsequent decade.
Note that the percentages in the right three columns of the table indicate how many prior months were less bullish than today’s reading. So a 100% reading — as, for example, in the row for the average U.S. household’s equity allocation — means that the indicator is more bearish today than at any time since 1990, 1970 or 1950. The average percentage across the right-most three columns is 94% — a highly bearish consensus for all 10 indicators.
Market Update
The recent pattern of strong Mondays continued this week with stocks popping +1.4% on words from President Trump that the U.S. and Iran had “productive” conversations. Investors are anxiously awaiting the end of hostilities and the reopening of the Strait of Hormuz with the expectation that will cause oil prices to stop rising. Tuesday saw a -0.4% dip with Iran denying any talks were taking place. Another +0.8% gain Wednesday as investors again looked to possible ceasefire talks as impetus to add stock market exposure. It all fell apart Thursday though as oil prices surged above $100 once more to send stocks sharply lower. The Nasdaq 100 (QQQ) and S&P 500 sold off throughout the day with both breaking below support in a -2% drubbing. The selling continued throughout Friday in another nearly -2% swoon. With no apparent moves toward a war stoppage, investors shifted their view to considering the possible long-term damage to energy resources and higher-for-longer oil prices. Interest rates responded by pushing further upward with the 10-year yield approaching 4.5% and the 30-year note near 5%. The 30-year yield has not been that high since the peak of inflation-fighting back in 2023, a level which had not been seen in almost 20 years. Also hitting the Nasdaq this week was a negative legal result for Meta and Alphabet (Google) which could threaten their social media businesses (Meta was down -11% this week).
The continued rise in oil prices and attendant lift in interest rates took their toll on stocks this week. The S&P 500 (SPY) slid -2.23% while the Nasdaq 100 (QQQ) fell -3.22%. Small cap stocks (IWM) surprised with a flat week at +0.36%. The Nasdaq has now fallen for five consecutive weeks and eight of the past nine weeks as selling has accelerated the past two weeks.
Warm wishes and until next week.