Analysts suggest that the four-year streak of double-digit gains in the US equity market is a historical anomaly.
Elevated valuations and rising interest rates could potentially exert downward pressure on investors has improved, bolstered by the rise in yields.
While stock investors have enjoyed a remarkable run, it may be time to temper expectations.
According to Morningstar’s CRSP US Stock Database, the US equity market has delivered returns of approximately 24%, 22%, and 18% in the three calendar years following the 2022 bear market. With stocks currently on pace for an 11% return this year, US equities have averaged nearly 19% annually over the last four years, dividends included.
Although this period of exceptional performance has been beneficial for portfolios, analysts point out that it is not the standard. Over the past century, stocks have maintained a 10% compound annual growth rate.
However, mounting skepticism regarding the artificial intelligence trade—a primary engine of the current bull market—is weighing on stocks. While valuations have moderated recently, they remain high. Looking at the broader picture, analysts anticipate that interest rates and inflation will stay elevated for some time, creating headwinds for equities.
Experts suggest this is reason enough for investors to adjust their outlook, particularly regarding stocks. “Expectations are elevated,” says Emily Roland, co-chief investment strategist at Manulife John Hancock Investments. “Investors haven’t really experienced any meaningful downside volatility that’s lasted in the last few years.”
The potential for downside risk in stocks does have a silver lining. In the fixed-income market, the higher interest rates that may hinder stocks could improve the outlook for bonds. Analysts believe investors might see better bond returns than they have over the previous decade.
“The relative valuation of equity and fixed income has changed,” says Stephen Dover, chief market strategist and head of the Franklin Templeton Institute. “As an investor, you’re making a different decision [with stocks]: How much better than fixed income can I do?” With rates rising, lower-risk bonds yielding 5% or more are becoming more attractive. Consequently, stocks must perform even better than they did during the low-rate era to justify the risk to investors.
The US stock market has historically returned about 10% annually over the last century. However, returns since 2022, and even since the mid-2000s, have exceeded that figure.
“We are amid the greatest four-year bull market in modern history,” says Roland of Manulife John Hancock. She notes that an investment made at the market bottom in October 2022 would have compounded at an annual rate of 22%, more than double the long-term historical average.
“We’ve been in this unusual period between the great financial crisis and the great covid crisis,” explains Dover of Franklin Templeton. He notes that this era was defined by rock-bottom interest rates, which disproportionately boosted stock returns over fixed income. More recently, the AI boom has driven stocks to new heights.
Andrew Slimmon, head of the applied equity advisors team at Morgan Stanley Investment Management, reminds investors that a 10% compound annual return does not imply a steady 10% gain every year. During bull markets, annual returns can significantly exceed that figure, while corrections or bear markets can result in losses. “The key question is: When is the next correction going to wash away this strong bull market?” he says.
While no one can predict the future of the markets, analysts agree that the dramatic outperformance of recent years is unlikely to persist. Vanguard projects that the US equity market will return between 4.8% and 6.8% on an annualized basis over the next decade. These conservative expectations are driven by high valuations, explains Kevin DiCiurcio, Vanguard’s head of capital markets research.
“Valuations aren’t very useful for predicting what markets will do over the next year or two, but they have historically been more informative about returns over longer horizons,” DiCiurcio told Morningstar via email. “When stock prices are high relative to fundamentals such as profitability, inflation and interest rates, investors are paying more today for the economic fundamentals that ultimately support future cash flows, which tends to reduce the returns they can reasonably expect over time.”
A market-wide decline in valuations led Vanguard to increase its projections last month, which had been even lower (4.2%-6.2%) at the end of June. While Vanguard’s outlook is more conservative than some, they are not alone in forecasting returns below those of the past three years. As of August, BlackRock projected roughly 9% returns for the US equity market over the next five years, while JPMorgan Asset Management expects US large-cap stocks to return about 7.5% over the next 10-15 years.
Dover of Franklin Templeton believes the historical long-term return of 9% or 10% for equities remains achievable over the next decade. This is based on the market’s historical tendency to deliver a roughly 4% premium over the risk-free interest rate, typically benchmarked against the 10-year Treasury yield.
Dover highlights three key factors for stocks: the economic impact of AI, the trajectory of interest rates relative to inflation, and whether the United States can maintain its outperformance against international markets. Other trends are also influential, such as the increasing number of companies remaining private for longer, which may keep significant growth opportunities off the public markets.
Analysts note that the same factors creating headwinds for stocks may create opportunities in other asset classes. “To us, there’s an opportunity not to abandon stocks at these levels, but to temper expectations and maybe up your expectations on fixed income as we head into 2027,” says Roland of Manulife John Hancock.
Vanguard projects returns of 5.1%-6.1% for aggregate US bonds over the next decade. BlackRock anticipates a roughly 4.9% return on aggregate bonds over the next five years, and JPMorgan Asset Management expects a 6.1% return on investment-grade bonds over a longer period. This represents a significant shift from the current environment, where the Morningstar Core US Bond Index is down 0.29% so far in 2026.
Even if future US equity returns appear more modest, analysts advise that investors should not abandon stocks entirely.
“Rates are high, and we think they’re going to go higher,” says Dover of Franklin Templeton. Consequently, the value of bonds compared to stocks has improved. “It doesn’t mean we’re not positive on equities,” he says, noting that he expects strong earnings to continue fueling growth in the short term.
Roland of Manulife John Hancock anticipates low-double-digit market returns next year, which would remain above average. Over the long term, she expects returns to revert toward their historical norms. “I still think stocks are going to be the most powerful compounder of returns over time in portfolios,” she says.
Slimmon of Morgan Stanley suggests the short-term outlook could be even brighter: “It’s likely that this bull market could actually last longer,” given the persistence of strong earnings growth. He notes that he does not see signs of bubble-like euphoria in the market.
While single-digit stock returns might seem unusual to modern investors, strategists emphasize the importance of perspective. “It’s important to remember what’s normal by recent memory versus what’s normal by longer-term history,” says Steve Sosnick, chief strategist at Interactive Brokers.
“Stocks only care about what is priced into the future, but investors frame their viewpoint about the future based on what’s happened recently,” says Morgan Stanley’s Slimmon. He advises investors to stay the course through market pullbacks and to add to positions during downturns to secure better long-term returns.
For Franklin Templeton’s Dover, the most effective way to maximize equity returns is also one of the most mundane: dollar-cost averaging over a long time horizon. “It makes a lot of sense to be in equity and look at it over a long period because it isn’t actually that risky,” he says. “Arguably, it’s risky not to be in equity.”
