Brace for a lost decade for U.S. stocks, warn Morningstar strategists

It’s time to put away the grill and fireworks and instead focus on the Fed minutes that will hit during afternoon trading.

If the smoke signals from Jay Powell & Co. aren’t stirring enough, we’ve also got Washington and Beijing’s dueling tariff packages that are getting closer to taking effect. And there’s Friday’s jobs report.

Beyond the near-term economic headlines, strategists at Morningstar say the longer-term outlook isn’t that great for U.S. stocks, providing our call of the day.

“Our expectation at the moment is that you won’t have any real return from U.S. equities over the next 10 years,” said Morningstar’s Dan Kemp at a company event Wednesday in London. In the chart he shared below, the black line is pretty close to zero for American stocks.

Morningstar

That line represents implied returns for various stock markets after adjusting for current valuations. The U.S. equity market “looks both extremely expensive and very unattractive relative to other markets,” said Kemp, who is the research and money management company’s chief investment officer for Europe, the Middle East and Africa. But he also waved the Stars and Stripes a bit: U.S. Treasurys GOVT, +0.16% “are actually the most attractive government bond market,” he said.

So which stock markets look like smarter bets?

“The U.K. EWU, +0.32% is giving you a much better real return, with roughly equivalent levels of risk to the U.S.,” said Morningstar’s Mike Coop at the event, as he offered the chart below. Brexit-related fears appear “overdone,” he said.

Morningstar

The U.S. is beating Britain this year, just as happened in the War of Independence, with the S&P 500 up 1.5% so far in 2018, while the U.K.’s FTSE 100 UKX, +0.50% is down about 1%. Yet Morningstar’s London team urges taking the long view and having

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