Howard Marks cites a JP Morgan chart showing that buying the S&P 500 at a P/E ratio of 23 historically yields near-zero 10-year returns. Today's P/E sits at 24-25, suggesting similarly flat long-term performance ahead, despite the index's 100-year average of 10% annual returns.
JP Morgan published a chart around the end of '24, and it was a scatter diagram showing over the years the relationship between the S&P 500 at purchase and the return over the next 10 years. It was a negative correlation, which means the higher the P/E ratio you pay, the lower the return you should expect. Makes perfect sense. And it showed that historically, if you bought the S&P when the P/E ratio was 23, in every case, there were no exceptions, your annualized return over the next 10 years was between 2 and minus 2. So all you have to know, what are we today? 24, 25. Because why? Because prices have risen. By the way, one of the most interesting things about the S&P, on average it has returned 10% a year for 100 years. But do you know that the annual return is almost never between 8 and 12? It kills it, or it dies. Yeah.
