In contrast to the average 16% annualized returns the S&P 500 delivered over the past 11 years, Research Affiliates founder Rob Arnott expects paltry returns in the coming decade. This according to a recent article in Financial Advisor magazine.

The article reports that, according to Arnott, “a traditional 60-40 portfolio is likely to deliver somewhere between zero and 1% over the next decade, a period when all baby boomers will have reached normal retirement age.” The article notes that Arnott’s scenario includes the “striking” assumption that by 2030 equities will still be expensive by historical standards.

At the center of Arnott’s thesis is the assumption of mean reversion—“or simple price-to-earnings multiple compression”—and in order to revert to historical norms, the multiple on the S&P 500 should decline by 6% a year over the next ten years. Arnott also assumes a 2% dividend yield, real earnings growth of 1.5% and real returns of 0.5%, all optimistic assumptions in his view.

Arnott explains, “It assumes earnings and dividends hold, and that there are no long-term growth headwinds and a normal number of bankruptcies,” which few believe will be a reality in the wake of the pandemic.

“I can’t believe people are still calling this a recession,” says Arnott, who rebuts that if ever there was a depression, we’re seeing it now. The article concludes, “He has a point. In the two years after the Great Recession began in December 2007, America lost nine million jobs. Contrast that to the 40 million unemployment claims filed in the four months since March.”