10-Year Lookahead Survey Results

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10-Year Lookahead Survey Results

Thanks to everyone who took our “DataTrek 10-Year Lookahead Survey”! We had several comments to the effect that “the questions encouraged me to think about asset allocation in some novel ways”, and that was certainly part of our goal.

Before we review the responses, a few points:

  • We had a total of 368 responses. As usual, the vast majority (99.5 percent) were from the DataTrek Community, with 19 responses from social media.
  • Where logical, we randomized potential answers.
  • The survey ran from Monday – Sunday last week with answers coming in pretty evenly through the work week.
  • Where we think it helps tell the story of each response set, we’ve included the raw vote tallies as well as the percentage of total responses in the analysis below. Not all percentages total 100 due to rounding.

With that, here are the results with the most common responses in bold and some brief commentary on what we see in each set of replies:

#1: What do you expect will be the S&P 500’s compounded annual return over the next 10 years? (Choose one)

  • +15% annually: 1 percent of respondents
  • +10% to +15% annually: 16 percent
  • +5% to +10% annually: 60 percent
  • 0% to +5% annually: 19 percent
  • 0% to -5% annually: 2 percent
  • -5% to -10% annually: 1 percent
  • -10% to -15% annually: 1 percent
  • Worse than -15% annually: 0 percent

Comments: negative 10-year nominal compounded returns are absolutely possible (e.g., 2000 – 2009, -1.0 pct), but 96 percent of our respondents did not see that happening from 2021 – 2030. The majority saw +5-10 percent compounded annual growth rates (CAGR) as the most likely outcome. Should that occur, the 20-year CAGR from 2011 – 2030 would be between 9.3 – 11.9 percent, or right in the middle of the average 20-year CAGRs back to 1947 that we discussed in last week’s Story Time Thursday.

#2: What do you think the 10-year Treasury note will yield at the end of 2030? (Choose one)

  • Over 5 percent: 9 percent of respondents
  • Between 2 – 5 pct: 64 percent
  • Between 0% – 2 pct: 24 percent
  • Less than 0 pct: 2 percent

Comment: with the majority of respondents answering 2-5 percent, we have the first instance of a recurring theme in this survey’s answers, namely an expectation of a “return to normalcy” in the upcoming decade. We chose these ranges to represent 3 historical periods: the 1970s to the 1990s (over 5 percent), the 2000s (2 – 5 percent), and the 2010s (mostly below 2 percent). Since the bulk of responses were in the middle category, this implies survey takers expect higher rates in this decade and an end to the 10-year Treasury’s 40-year bull market.

#3: Which asset class do you think will perform the best over the next 10 years? (Choose one)

  • US large cap stocks (S&P 500): 29 percent of respondents
  • Emerging Market stocks (MSCI EM): 28 percent
  • US small cap stocks (Russell 2000): 17 percent
  • Chinese equities: 14 percent
  • Gold: 7 percent
  • Non-US developed economy stocks (MSCI EAFE): 4 percent
  • US 10-year Treasuries: 0 percent (1 vote)
  • US Investment Grade Corporate Debt: 0 percent (1 vote)
  • US High Yield Corporate Debt: 0 percent (1 vote)

Comment: the survey shows the decade to come may be a matchup between the S&P 500 and the MSCI Emerging Markets Index, with the undercard a contest between Chinese equities and US Small Caps. These will be fascinating matchups, because MSCI EM has only just now made a new post-Financial Crisis high (i.e., back to 2007), and the Shanghai Comp is still +35 percent off its highs of 14 years ago. Both the S&P and Russell have had much better post-2010 performance. All this has left US stocks with higher valuations than EM/China equities, so the real question for the next decade is “can they finally start to earn their way to higher multiples?”

#4: Which US equity market sector do you think will perform the best over the next decade? (Choose one)

  • Technology: 57 percent of respondents
  • Health Care: 16 percent
  • Energy: 6 percent (23 votes)
  • Financials: 6 percent (21 votes)
  • Communication Services: 4 percent (15 votes)
  • Consumer Discretionary: 4 percent (13 votes)
  • Materials: 2 percent (9 votes)
  • Consumer Staples: 2 percent (6 votes)
  • Industrials, Real Estate and Utilities: 1 percent each, 4 votes each

Comment: Tech was a runaway winner, but every sector got some votes. There is also some of the “return to normal theme” in the 6 percent vote share for Energy and Financials since both groups will do better if we see oil prices and the shape of the US yield curve return to something more like historical precedent.

#5: What do you think the average annual US CPI Inflation rate will be over the next decade? (Choose one)

  • Greater than 5 pct annually: 4 percent
  • Between 2 and 5 pct annually: 62 percent
  • Between 0 and 2 pct annually: 33 percent
  • Less than 0 pct annually (deflation): 1 percent (4 votes)

Comment: the CPI was reliably between 2 and 5 percent from 1982 – 2008, but more like 0 – 2 percent from 2010 onward, so the majority response here is another example of respondents’ belief in a “return to normal” over the next decade.

#6: Where do you think the price of oil will be in 2030 (Choose one)

  • Over $100/barrel: 9 percent of respondents
  • Between $75 – $100/barrel: 18 percent
  • Between $50 – $75/barrel: 33 percent (123 votes)
  • Between $25 – $50/barrel: 33 percent (120 votes)
  • Between $0 – $25/barrel: 7 percent

Comment: oil is one example of where survey takers DO NOT expect the future to look like the past. WTI was reliably over $80/barrel from 2010 to 2014, but most (73 percent) do not expect it to end the decade there. We suspect the rise of green energy, on top of expectations for a peaceful Middle East, are the primary drivers of this assessment.

#7: Do you think the Federal Reserve’s balance sheet will be larger or smaller than it is today in 2030? (Choose one)

  • Larger: 67 percent of respondents
  • Smaller: 18 percent
  • About the same: 16 percent

Comment: most respondents clearly feel that the Fed will be buying/not selling bonds over the decade to come. We would note that this was not by any means an overwhelmingly consensus view, however.

#8: What percent of new vehicles sold in the US in 2030 do you think will be fully electric? (Choose one)

  • Over 50 pct: 28 percent of respondents
  • Between 25 – 50 pct: 46 percent
  • Between 0 – 25 pct: 26 percent

Comment: this represents a notable amount of confidence in American EV adoption over the next decade considering 2020’s market share was less than 2 percent. California’s 100 percent new EV mandate only goes into effect in 2035, so even if other states adopt CA’s regs (and we’re sure some will) getting to +25 percent-plus may be difficult. On top of that, if oil prices remain as low as our respondents believe (question #6), EV substitution may miss a useful tailwind.

#9: What percent of new vehicles sold in the US in 2030 do you think will have fully autonomous driving capabilities? (Choose one)

  • Over 50 pct: 10 percent of respondents
  • Between 25 – 50 pct: 20 percent
  • Between 0 – 25 pct: 70 percent

Comment: as much as respondents were optimistic about EVs, they were quite cautious about AV technology. Autonomous driving is certainly a greater technological challenge, so that makes sense to us.

#10: Do you think new technologies (i.e., smart glasses, earbuds, connected cars, etc.) will mean you use your smartphone less in 10 years than you do today? (Choose one)

  • Yes: 40 percent of respondents
  • No: 60 percent

Comment: so much of modern consumer technology has its nexus at the smartphone that we’re always curious about what might break its dominance and when that might occur. Wearables/extensions (like in-car technology) are one potential answer, but our respondents were pretty evenly split on whether this will have any effect over the next decade.

#11: Do you think you will own a personal vehicle in 2030? (Choose one)

  • Yes: 86 percent of respondents
  • No: 14%

Comment: as much as there was a lot of enthusiasm over the sharing economy a few years ago, perhaps the pandemic has reinvigorated the notion that personal vehicle ownership is still very relevant to many consumers.

#12: Right now, Apple, Microsoft, Amazon, Google, Tesla and Facebook are the largest companies in the S&P 500. In your opinion, which company is LEAST LIKELY to still be in the top 6 in 2030? (Choose one)

  • Facebook: 47 percent of respondents (172 votes)
  • Tesla: 40 percent (147 votes)
  • Apple: 4 percent (16 votes)
  • Microsoft: 4 percent (14 votes)
  • Google: 3 percent (10 votes)
  • Amazon: 2 percent (9 votes)

Comment: history says the top names in the S&P 500 often change over any given decade, and through 2030 our respondents clearly identified Facebook and Tesla as the 2 companies most likely to fall off the top of the leaderboard. We did not ask why respondents felt this way, but we assume they are concerned about Facebook’s regulatory risk and Tesla’s competitive profile as other carmakers start releasing mainstream EVs.

#13: Thinking now about the same companies, which do you think is the MOST LIKELY to still have a top 6 weighting in the S&P 500 in 2030? (Choose one):

  • Amazon: 46 percent of respondents
  • Apple: 21 percent
  • Microsoft: 15 percent
  • Google: 9 percent
  • Tesla: 7 percent
  • Facebook: 1 percent (3 votes)

Comment: we weren’t terribly surprised to see Amazon at the top of the heap here, but Facebook’s paltry 3 votes shows an analog sense of conviction to Q#12 that the social media company faces a lot of challenges in the years ahead.

#14: In your opinion, what are the TWO most important disruptive tech investment themes for the next decade in the list below? (Choose 2)

  • Advances in biotechnology: 25 percent of respondents
  • Rise of global green energy: 18 percent
  • Cryptography-based currencies: 11 percent
  • Reconfiguring “work” in a post-pandemic world: 10 percent
  • Autonomous vehicles: 9 percent
  • Regulation of US Big Tech: 8 percent (62 votes)
  • Increasing globalization of Chinese technology: 8 percent (56 votes)
  • Commercialization of outer space: 4 percent (30 votes)
  • Hard-wired computer/human interfaces: 4 percent (29 votes)
  • Wearable technologies that replace smartphones: 4 percent (27 votes)

Comment: as much as biotech and green energy were the favorites, they only garnered 18 – 25 percent of aggregate responses each since we asked for 2 choices. That means there is a wide dispersion of “next big things” and none are consensus ideas at present.

Concluding with 3 final thoughts which get at the most important question from all this, namely “how do I make money with this survey?”

#1: Even if a 10-year span feels long, it’s only half of the naïve (undiscounted cash flows) forecast horizon for a 20x price-earnings market so considering what is/isn’t factored into asset prices is a useful exercise. The investment narrative that best frames the consensus answers to questions 1 – 7 is that the decade of the 2020s will see:

  • Enough corporate earnings growth (aided by rising inflation) to offset higher discount/interest rates
  • Cheap carbon-based energy and Fed bond buying (although the latter is not as high conviction a call)
  • Outperformance by classic cyclical equity indices (small caps and EM) and/or the Tech-heavy S&P 500 since that sector is the overwhelming favorite to do the best over the next decade.

Conclusion: valuations are always a function of investor confidence as much as fundamentals, and in our survey’s aggregate responses we can see why US stocks trade at over 20x earnings today. Yes, it is partly due to confidence in a post-pandemic recovery. But rich valuations also stem from a deeply held point of view that we’re entering a decade that closely resembles the best of all possible worlds. Maybe we are. But the bottom line lesson here is to embrace the idea that this is pretty close to consensus thinking.

#2: Dramatic growth in US electric vehicle adoption is a very high conviction market call.

  • 60 percent of respondents felt they would likely use their smartphones just as much in 2030 as 2021.
  • But almost three quarters (74 percent) of respondents think automakers will sell 4 million or more electric vehicles in 2030 assuming a normalized selling rate of 15 million cars/trucks annually.
  • This optimism doesn’t come from blind faith in automotive technology advances. Respondents were cautious on autonomous vehicle sales and voted Tesla the second most likely Big 6 S&P company to lose its top position by 2030.

Conclusion: 10 years is just long enough that investors don’t need to see widespread EV adoption in 2021 or even 2022 to continue to believe in this narrative. We’re seeing this play out in GM’s stock price right now, as well as in parts of the IPO/SPAC market. Any automaker or related company not on this bandwagon soon risks being “Amazoned”. Also, the Energy sector is probably closer to this investor sentiment “brink” than its recent rally indicates. The bottom line to all this is that investors believe very, very strongly in an EV future and will continue to hunt for second and third derivative plays off this theme.

#3: Coming back to last week’s Story Time Thursday, we wonder if we can really get 5-10 percent annualized returns for the S&P 500 (or even MSCI Emerging Markets) if Tech is the best performing group over the next decade. Perhaps, but the easier path to those returns is if other industries see their productivity improve because of new tech-enabled goods and services. If the 2010s was the decade where we saw Technology build a set of useful tools, then the 2020s should be when those get put to use.