6.2% (1945-2008)
5.7% (1979-2008)
3.5% (1877-2008)
Depending on which rate you choose, adding these numbers to the 2008-year-end yield of 3.2% produces a stock market return forecast ranging from 6.7% to 9.4%.
Perhaps the only thing we can say for sure about the Gordon equation's outlook these days is that it's predicting higher equity returns for the years ahead than it was in the late 1990s and early 2000s. Even so, there's no guarantee that the current prediction will prove accurate. Then again, there was no guarantee either in the early 1980s, when the Gordon equation was predicting strong returns; or in the late 1990s and early 2000s, when the performance outlook for stocks looked unusually meager. As it turned out, those general forecasts look pretty good in hindsight.
James Picerno is editor of The Beta Investment Report (BetaInvestment.com)