While there are some striking similarities between the market landscape of 140 years ago and today, the decade ahead is “not likely to include a replay of the raging 1920s bull market,” according  to a recent article in Bloomberg.

The article notes that then, as now, “the U.S. was digging out from the public health and economic fallout of a global pandemic even as a wave of new technology was set to transform the country’s political, social and economic landscape.” Specifically, the Covid-19 pandemic along with “flood of new technology ordering life today” is reminiscent of the Spanish Flu of 1918 that was followed by the mass adoption of electrification and the combustion engine.

While the comparisons fuel speculation that another Roaring ‘20s is underway, the article highlights out a critical difference between the two periods: Namely, “as 1920 came to a close, the U.S. stock market was the cheapest on record—before or since—going back at last 140 years.” By contrast, it argues, today’s market is expensive and, in fact, has been more expensive only once before.

Today’s high cyclically adjusted price-earnings ratio (CAPE) “depresses dividend yields and leaves valuations with more room to contract than expand,” the article explains, adding that this weighs on earnings growth. Dividend yields stand at around 1.4% currently, and valuations are stretched, the article argues: “The best investors can reasonably hope is that valuations remain elevated and that earnings continue to grow in the high single digits,” so that the S&P 500 may offer average returns over the long term of 10% per year.

According to the article, however, that’s a “big ask” given that earnings have never sustained such a pace of growth over a twenty-year period, “nor have valuations hung around such lofty levels for long. Assuming earnings grow in line with their long-term average of roughly 5% a year and valuations contract modestly,” it concludes, “investors can expect a return closer to 4% to 6% a year from the S&P 500 this decade. That’s not bad, particularly when bonds offer a lot less, but it’s a far cry from the Roaring ‘20s.”