Nine major valuation indicators sound the alarm: U.S. stocks may average an annual loss of 3.2% over the next decade.

Valuations in the U.S. stock market are at extremely high levels, with multiple long-term valuation indicators simultaneously flashing warning signals.

On August 25, MarketWatch columnist Mark Hulbert wrote that out of the nine historically predictive valuation indicators he examined, seven predicted that the real returns of the S&P 500 over the next ten years would be below the rate of inflation, one predicted roughly breakeven, and only one projected positive real returns—but still significantly below historical averages.

The average forecast across these nine indicators is more pessimistic: the S&P 500's annualized real total return over the next ten years is expected to be -3.2%. This suggests that the current high valuations of U.S. stocks may have already exhausted much of their future returns.

Presently, U.S. debt expansion, geopolitical conflicts, and controversies over AI valuations are all increasing market uncertainty, while high valuations mean the market has less room to absorb these potential shocks.

Multi-dimensional Valuation Indicators Warn Simultaneously

Hulbert’s nine indicators come from different valuation dimensions, including P/E ratio, P/S ratio, P/B ratio, dividend yield, and total stock market capitalization/GDP, among others. Although their calculation methods and logic vary, most indicators reach similar conclusions: The higher current valuations, the lower the real returns tend to be over the next ten years.

One of the stronger predictive indicators is the U.S. household equity allocation. This indicator does not directly measure whether stocks are expensive or not, but instead observes how much household investors allocate to equities. Historically, investors tend to increase their equity allocation when markets are rising and sentiment is high, so household equity allocation usually peaks at the end stages of bull markets. Currently, this indicator is near its historical highs.

More importantly, household equity allocation does not have a direct link to traditional valuation metrics like P/E or P/S ratios, yet arrives at similar long-term return expectations. In other words, indicators from differing logics and dimensions are simultaneously sending similar signals, which is more noteworthy than just a single valuation metric being at a high level.

High Valuation Doesn’t Mean Immediate Drop—The Real Issue Is Future Returns

Hulbert emphasized that valuation indicators are not short-term timing tools. U.S. stocks can continue to rise, or even stay high for years, while in a high valuation state, so these indicators cannot answer the question "When will the market peak?"

In fact, some valuation indicators have been running at high levels for years, yet U.S. stocks have kept rising, which is why some believe traditional valuation indicators are now ineffective.

But the value of valuation indicators is not in predicting short-term tops, but in judging whether the current price offers attractive long-term returns. If these indicators still hold true, then the current high valuations mean the potential returns over the next ten years have already been markedly compressed.

Thus, U.S. debt expansion, geopolitical risks in the Middle East, and controversies over AI valuations may not immediately trigger a market adjustment, but high valuations mean a thinner market safety cushion. If economic growth, corporate profits, or liquidity change unexpectedly, market volatility may be further amplified.

For long-term investors, the real issue may not be when U.S. stocks will peak, but: At current valuation levels, how much real return can be expected over the next ten years?

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