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It turns out, past performance is actually a very good indicator of future returns.
That’s according to the latest research presented by private-equity giant KKR in its 2022 outlook.
Analysts led by Henry McVey, head of global macro and asset allocation, looked at weekly S&P 500 price returns dating back to 1981.
Based on this year’s strong returns, the probability of a positive forward return over the next 12 months is approximately 75%. Over the next three years, it’s about 90%. “Our research suggests that, despite several macroeconomic headwinds, now is not the time to hit the panic button,” said McVey.
Through Thursday, the S&P 500
SPX,
has gained 24% in 2021.
KKR says equities remain the asset class of choice, as both “innovation and complexity should work this cycle.” They forecast the S&P 500 to reach 4,900 by the end of 2022, with 15% earnings per share growth.
Demonstrating the innovation theme — the average company in the S&P 500 now lasts 12 years as an index member, compared to 61 years in 1958.
Just 1.5% of all stocks have generated net wealth — that is, outperforming a one-month
TMUBMUSD01M,
Treasury bill — in global markets since 1990, their analysis adds.
KKR expects higher inflation than consensus, seeing 5% growth in U.S. consumer prices next year versus a consensus of 3.6%. “We think inflation is going to land at a higher resting rate than it did in the past,” they said.
