Stock Market Forecast for next 5 Years

The stock market forecast for the next 5 to 10 years is a serious matter for many retail investors who are realizing the 3 month, 6 month and 2023 forecasts are just a recording of volatility and temporary sentiment.

Short term outlooks tell very little about where your investment values will be in the next decade. The long term forecasts help you orient you for the real purpose of maximizing your 401k and retirement wealth.

Consider how much forecasts have changed just in the last 2 to 3 years.  Kind of takes the science out of it, but perhaps you can develop a reliable projection based on the key drivers of stock values such as earnings, taxes, government spending, international trade, energy prices, demographics, etc.

The 5 year forecast is cautiously optimistic, but political events could send it either way (wars, elections, end of globalism).

5 Year Study Protects your 401k or other Investments

Fund managers and institutional investors also see the 5 year and 10 year models as more informative. Of course they have some insightful forecasting tools including technical charts, GDP forecasts, commodity prices, demographic demand projections, and more data to make better predictions.

Of course, even with those expert forecasting tools/software and massive data, they aren’t too bold about venturing 5 to 10 year forecasts. Because too much of it tends to be political and organic.

2 Year forecast for S&P 500

2 year forecast for s&P 500.
2 year forecast for s&P 500. Screenshot courtesy of Longforecast.com

To build an accurate 5 to 10 year forecast, retail investors can look at historical models but this period of extreme Fed spending and liquidity have muddled the accuracy of that view. And the government could increase the money supply again at any time.

So don’t discount what you know about the US government and what it might have planned for the next 5 years.

Most projections of the economy would see increased spending, more production of goods and technology within the US, and perhaps more immigration as America’s population ages, and US workers shun minimum wage jobs.

Internationally, globalism is likely to fail due to world consumers are reaching serious poverty levels. We’re on borrowed time as the era of profligate government spending might be over. Russia’s actions means they will never be trusted again in Europe.  And given investment in oil production is weak, the price of oil and energy is likely to rise in the years ahead.

This means oil stocks will likely be very valuable by 2024, and beyond. Estimates of the demise of fuel based energy has been exaggerated. It will take a decade at least before electric vehicles are dominant.

US Government Spending Likely Won’t Stop

The end of government spending ending means demand would drop significantly, and protectionism would reign. But for the US, which has been “funding the world”, the outlook could be for more focus within the US. As it stands politically, the GOP house may not be able to stop the Dems from spending in the next two years.

Further, stopping spending would bring a financial crisis, therefore deals will be made to fund everything.

If the Repubs win the 2024 Presidential election, they would open up energy supply and lower taxes, which would make investors very happy. Right now, we’re in suppressed free market condition. Without regulations and forced inflation, the markets are doing okay, existing on stimulus cash for a while.

In 2024, the US interest rate could fall, allowing homebuyers to see their prized goal of buying a home and businesses could access cheap capital once again. The pent up demand in the housing market is significant. A hot housing market stimulates economic activity.

Over the next 5 years, the US dollar is likely to fall, as it is plummeting now, however who is to say the USD won’t rocket back when the recession ends in 2024? For 2023/2024, US exports will be cheaper, and imports will be more expensive. That’s very good for the US economy and helps build a positive outlook toward 2027.

Quite a few investors are looking beyond the immediate, 3 month or even 6 month period are looking at the long term, 5 year to 10 year period to avoid the current volatility and ride out the recession.

The 5 year term to 2027/2028 allows us to draw a path to what levels the Dow Jones, S&P 500, NASDAQ, Russell 2000 and the US Dollar will reach.

It’s immensely difficult to predict that far ahead for 10 years even for the biggest investment firms blessed with AI technology. Guessing political trends and events, weather outlooks, trade agreements, and technology developments is difficult.  But we can see government debt, global market access, demographic changes, and all data that is consistent with post-recession phase growth.

We’re at the end of a 14 year bull market, so what will happen after this one to two year balancing of the economy?

After $7 Trillion in spending, US consumers are still optimistic and have plenty of household wealth and secure jobs. Is inflation enough to destroy the 5 year economic outlook?  Probably not.  The US economy is very strong which is why the Fed and current US government are struggling to suppress it. Experts expect it to come flying back.

You can invest in good dividend stocks, growth stocks, or even bonds and you may ride this artificial recession out.

After the Recession, The US Economy Will Return

2023 may not be much fun for investors, after the losses of 2022. But consider these factors as a run up to 2027:

  • interest rates will drop down to very affordable levels
  • small to medium sized businesses will find growth
  • commodity prices will have fallen to lower levels making production cheaper
  • resistance to open trade with China will increase — raising production within the US
  • oil prices and energy costs will rise over next 5 years
  • taxes will rise to pay for government spending
  • pent up housing demand launches housing market boom
  • millennials still driving big demand with huge Gen Z’s soon to follow
  • housing stock increases allowing Americans to move more comfortably to a new home
  • US economy more de-centralized away from big urban centers and costly California
  • move away from low profit/high cost green energy in 2025 to practical sources
  • wages won’t drop as much as Fed wants meaning inflation will continue above 2%
  • Fed rate increases will end in 2023

The 3 month to 6 month outlooks may be troubled with a bottoming out in the next two quarters. Investors will get to hunt for bargains to buy the dip. and a rip your face off rally may just happen by late spring, after Fed ends it rate rises.

Right now, you’re looking to get back into stocks yet finding those equities that will survive the next 16 to 30 months isn’t an easy task. You could stick with the FAANG, or top 100 S&P stocks and you’ll likely survive in tact. This is the strategy for most investment firms, so they don’t really have any better grasp of the future of the stock market. Otherwise, they’d be picking some good horses to bet on.

What’s the Next 5 Years Going to be Like?

The chart from the conference board seems to show that the 2021 year of trillion dollar stimulus has spoiled markets and businesses who didn’t have to compete hard to win.  5 years from now in 2027, the question of US competitiveness will be answered.

As the chart below reveals, starting this year a pronounced drop in GDP, real disposable income, residential investment, will be countered by lower imports, falling inventories and rising government spending. But will the current government be in power after 2024?  Will a new government lower taxes, favor business, and strengthen commitment to US Companies. That would change all projections.

Start Investing for the 5 to 10 Year Period?

Investigating the 5 year or 10 year outlook is a sure sign you’re a wise investor. After all, if you don’t know what’s ahead for US business, then all of your investing is basically gambling (i.e., Bitcoin, FTX). You have to know which stocks are long term investments and be certain about when you’ll need to dump some of the speculative stocks you have now.

Would you rely on an AI stock prediction service for your 5 year outlook? Of course not, because the driving factors are human and emotional which machines can’t understand as yet.

Just for context, here’s what’s happened in stocks the last 5 years:

Stocks last 5 years. Screenshot courtesy of Barchart.com

My 5 year market forecast is for continued but modest growth beyond 2023, and I believe the US government will tackle the China problem, because they have to. The issue of competing with China and feeding the trade deficit will have to be dealt with. Ending that problem could result in an economic boom.

Some experts believe the 5 year outlook will be of lagging GDP, lower demand, and weak profitability. Schwab believes U.S. large-cap stocks will show 6.4% returns annually over the next 10 years, vs 7.5% for international large-cap stocks. They point out a projection from economists of 2.3% GDP growth per year, on average, over the next 10 years, compared to the historic average of 3.1%.

The Bureau of Economic Analysis forecast rising real GDP until about 2027, when it begins to tail off. This suggests the 10 year period is looking dour. A lot depends on US commitment to technology, American productivity, reshoring manufacturing, lowering taxes, and leveraging cheap carbon energy.

Growth of GDP to 2030.
Chart courtesy of BEA. Projected Growth of GDP to 2030.

CBO offer’s their projections for the 5 to 10 year period ahead. Their projections are for lower unemployment, lower interest rates and higher corporate profit after 2025.

Long Term Economic Projections. Screenshot courtesy of CBO.

US Trade Deficit Hit $80 Billion per Month

The balance of trade deficit is improving since the spring of 2022, however it has grown $10 billion from last year. A growing issue with import costs means the US is losing money which means lower domestic spending, higher unemployment, and troublesome long term national debt to finance.

US balance of trade 10 year chart
US balance of Trade. Screenshot courtesy of TradingEconomics.

As I mentioned two year ago the stock market predictions for 2022/2023 some big corrections would happen. Perhaps in October, we might see the first. The big event comes in December of 2022 with the mid term senate and house elections.

The US is battling China, because China is positioning to take all the global trade marbles for themselves and leave the US and Europe out in the cold.  China is suppressing its economy right now due to the cost of materials including coal, lithium, copper, steel, oil and natural gas. As its economy resumes in 2023, demand will grow and inflation will jump.

This will cause the current President and the Fed to overreact and raise interest rates.  This is why the next 6 months will provide outstanding buying opportunities for those with 5 to 10 year investment horizons.

Fantasy Economic Ideology Comes Crashing Down

We’ve seen the current US administration juggling endless tactics including free cash giveaways, stimulus trillions, and social re-engineering that are too far ahead of themselves (green energy, crushing US energy production, raising taxes on the wealthy). Some of these initiatives may help (supporting the burgeoning poor, building new infrastructure, encouraging renewable technology) but where is help for housing which is actually supporting the economy?)

The 5 year forecast period is one where the Dems will disappear from the Federal scene, which means we should look to Republican economic policy for guidance on the 2025 to 2027 period.

We should see some good periods for the Russell 2000 and S&P small caps, but it’s a tough life for small business. The government simply isn’t intelligent enough to know how to grow small business without alienating big business and causing stock equities to suffer. Between a rock and a hard place. Yet small business drives employment.

Check out Tesla, Bitcoin, 5G, Google, Apple as they likely will continue to perform well.  Some believe oil stocks will do well for another 5 years.  And if the stock market does crash, it will likely return by 2025 and even out nicely by 2027.

Enjoy the rocky road ahead. See more on the stock market forecast, stock market today, and what drives the S&P, Dow Jones, NASDAQ and Russell indexes. The broader you’re knowledge and the more diverse your perspective, the more likely you are to avoid picking stocks you should sell, and find the best stocks to buy for the next 5 years.

More Market Forecasts

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