Dow Jones to Underperform Relative to Emerging Markets Over the Coming Years

Even with the recent bounce in the US equity markets it is my view that over the coming decade or so they will underperform relative to Emerging Markets.

Dow Jones 200 Year chart courtesy of BCA Research

Looking at the BCA Research 200-year chart, the US Dow Jones Industrial Averages periodically hits critical points and fluctuates within the level for a span of years before advancing. This suggests that returns would likely be in low single digits or even negative. BCA expects the 10,000 to hold gyrate within the decade. Quoting BCA, “This level has been a barrier this decade, and a broad trading range around the 10,000 level should persist for many years. We are cyclically bearish on U.S. equities, and the Dow should drop below 10,000 before a Fed rate pause and lower bond yields provides relief. The longer-term outlook remains uninspiring, because stocks are not cheap, and the post-1981 era of plunging interest rates and rising P/E ratios is mature. Bottom line: equity investors must play the cycles in order to generate decent returns, and our current advice is to stand aside.”

Where money moves where it is treated best, it looks as if emerging market assets would benefit from a US underperformance