US stocks will likely be the best investment over the next five years, according to Carson Group.
The investment firm expects the US stock market to surge as much as 100% between now and 2028.
“The US has now raced ahead of other developed markets when looking at economic growth since the pandemic,” Carson Group said.
The US stock market is poised to be the best performing investment over the next five years, according to Carson Group’s global macro strategist Sonu Varghese.
Varghese told clients in a Wednesday note that the US stock market has as much as 100% upside potential between now and 2028, which translates into annual compounded returns of between 12% to 15%.
While that might sound like big returns, they’re not unlike what has happened to stocks historically, and over the past five years.
“If you look back at history, the average return over rolling five-year periods from 1923 through 2017 is about 11%,” Varghese said, adding that returns were higher than 12% annualized 51% of the time. “In fact, returns were under 8% in only 31 periods (32% of the time).”
Varghese pointed to the most recent five-year time period of December 31, 2018 through 2023. Despite two bear markets and a global pandemic, the S&P 500 gained 102%.
“Stocks have doubled over the last five years, amidst a worldwide pandemic, high inflation, an aggressive Fed, and surging interest rates,” Varghese said.
Varghese’s bold call for continued outperformance for US stocks goes against conventional thinking that international stocks are poised to finally outperform the US after a decade-long period of underperformance.
Varghese pointed to a strong US economy as reason why investors should stick with the US stock market.
“The [US] economy seems poised to grow around 2.5% to 3% in 2023 after adjusting for inflation, which would be above the trend we saw between 2010 and 2019. That is remarkable, especially given the massive headwind of surging interest rates,” Varghese said.
And since the pandemic, the US economy has far outpaced the growth of its international peers, growing 7% larger in real terms, compared to just 3% for its peers.
“We remain in the camp that the economy will avoid a recession,” Varghese said, adding that productivity growth, reshoring activities, and a strong consumer balance sheet will play a big role in fueling growth in the economy going forward.
“2023 was the year of normalization, and all the investment over the last couple of years is bearing fruit, and productivity is accelerating. Over the last two quarters, productivity growth rose at an annual pace of over 4.4% — the fastest two-quarter pace since the late 1990s outside of recessions and immediate post-recession periods,” Varghese said.
Productivity growth is important because it can enable solid wage growth for consumers without pushing inflation higher, a type of economic nirvana.
“Strong productivity growth that is accompanied by low inflation could lead to more expansionary monetary policy. That could lead to greater investment and a “tighter” labor market with low unemployment and faster wage growth. This could in turn fuel further productivity growth, and signal to the central bank that it can keep rates low,” Varghese said.
All-in, Varghese says the current economic conditions suggest investors should stick with what’s been working over the past five years for the next five years: US stocks.
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