There is currently uncertainty everywhere about how the economy in general and the stock markets in particular will develop. This is due to the fact that it is currently difficult to predict how the central banks will act in the coming months.

Will they continue to raise interest rates in order to mitigate the continuing high inflation? That would be possible, but they will not be able to push inflation back down to the target level of two percent in the long term. I have already explained the reasons for this in several capital market outlooks in recent months. Both demographic change and the reshoring of various production steps play a major role. Or are the central banks holding still because a recession is looming? There are also indicators for this, which I wrote about recently.

Forecasts are therefore not necessarily worthless, as certain things can be noted regardless of whether interest rate hikes or a recession are coming. These include the realization that the US stock market is overvalued. It was at the same level in 2021 as it was in 2000, which is absurd if we look at the political and economic situation at the time. In 2000, there was euphoria about the future prospects of telecoms and internet stocks. China was still small and supplied the world with cheap goods and Russia had narrowly avoided bankruptcy in 1998. America was the undisputed sole world power and the economy had been booming for several years. Investors saw no problems, especially geopolitical ones. In 2021, inflation was already on the rise and the coronavirus crisis had brought severe economic cuts. Since then, there has also been the outbreak of war in Ukraine. Even the majority of capital market experts now expect a recession; in Bank of America's latest Global Fund Manager Survey, only 19% did not expect a recession to occur in the next 18 months.

Due to this clear overvaluation, we currently assume that the average price increase of US equities will be zero percent per year over the next ten years. Another indicator also points to this: The optimism of private investors in the United States. This has proven to be misguided time and again in the past. Whenever they are optimistic, i.e. have a high proportion of shares in their portfolio, the price gains in the following ten years are very meagre. In the 17 years from 1974 to 1990, on the other hand, the proportion of shares was a low 15 percent or even lower. People were pessimistic, but the price gains in the following ten years averaged 340 percent, which corresponds to around 16 percent per year.

But there is also good news. Only US shares are overvalued. For Europe, we expect annual price gains of nine percent until 2033. And Japan could become an insider tip in the coming decade. Our models forecast a gain of "only" seven percent there. However, it must be taken into account that a forecast model trained with data since 1997 only produces moderate expected returns because the Japanese stock market has generated less than half of the global equity performance during this time at 3.3% per year. Japanese equities are therefore likely to perform better than expected, especially as the sharp rise in global interest rates has not taken place in Japan. Short-term interest rates are still below zero percent, while long-term interest rates are extremely low by international standards at 0.45 percent.

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