Howard Marks cites a JPMorgan chart showing that buying the S&P 500 at a P/E ratio around 23 has historically produced nearly flat 10-year returns of negative 2% to positive 2% annually. Today's valuations suggest the index is a poor bet compared to its century-long average of 10% yearly returns.
JPMorgan 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 -2%. To. It's all you have to know. 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? Kills it, or it dies.
