The most accurate stock market predictor was released this week. The next 10 years don’t look good

That azygous statistic is the ground of the banal marketplace indicator that its creator has called, with immoderate justification, the “single top predictor of banal marketplace returns.” It is the brainchild of the anonymous writer of the Philosophical Economics blog.

I americium unaware of immoderate different indicator that has a amended way grounds erstwhile predicting the S&P 500’s SPX, -0.22% full existent instrumentality implicit the consequent 10 years. As measured by a statistic known arsenic the r-squared, the indicator since 1951 has been capable to foretell 70% of the changes successful the banal market’s 10-year return. If you cognize of immoderate indicator that does amended than that, delight fto maine know.

One crushed wherefore I stake you didn’t announcement this week’s merchandise of this all-crucial indicator is that it’s not a short-term market-timing tool. It is updated lone quarterly and has a clip lag. And, by focusing connected wherever the marketplace whitethorn beryllium successful 10 years’ time, it tells you thing astir the way the marketplace whitethorn instrumentality successful getting there.

The adjacent bigger crushed wherefore the indicator whitethorn person been truthful wide overlooked this week: Its connection is hardly welcome. Its implicit forecast is that the banal marketplace volition beryllium importantly little successful inflation-adjusted presumption successful a decade.

The mean household’s portfolio allocation to equity presently stands astatine 50.9%. As you tin spot from the accompanying chart, below, it is simply a contrarian indicator, with higher allocations associated with little banal marketplace returns implicit the consequent decade. The existent speechmaking is higher than each but 1 play since 1951.

That lone objection came successful the archetypal 4th of 2000, close astatine the apical of the net bubble. That quarter’s speechmaking stood astatine 51.8% — conscionable 0.9 of a percent constituent higher than the latest reading.

How bearish is the indicator currently? According to a elemental econometric exemplary based connected the humanities narration betwixt the indicator and the banal market, the indicator is projecting that the S&P 500 volition nutrient a full existent instrumentality of minus 4.2% annualized implicit the adjacent decade.

Update connected valuation indicators

I besides privation to study the latest values of the 8 indicators I study each period successful this space, my monthly reappraisal of the presumption of valuation indicators with the champion grounds predicting the banal market’s 10-year returns. As you tin see, it’s not conscionable the mean household’s equity allocation that is bearish astir the banal market’s longer-term prospects.

Mark Hulbert is simply a regular contributor to MarketWatch. His Hulbert Ratings tracks concern newsletters that wage a level interest to beryllium audited. He tin beryllium reached astatine mark@hulbertratings.com.