Low-Frequency Waves and the Medium to Long-Term US Stock Market Outlook

TL;DR

This paper uncovers long-term cyclical patterns in the US stock market, showing that it exhibits mean reversion over approximately 30-year cycles linked to economic, social, and political rhythms, enabling medium to long-term outlooks.

Contribution

It provides evidence of long-term mean reversion and stock return predictability over 30-year horizons, connecting market cycles with broader societal rhythms.

Findings

US stock market exhibits 30-year cyclical mean reversion.

Long-term market rhythms align with economic, social, and political cycles.

Predictive relationships hold potential for medium to long-term market outlooks.

Abstract

In this paper we provide compelling evidence of cyclical mean reversion and multiperiod stock return predictability over horizons of about 30 years with a half-life of about 15 years. This implies that the US stock market follows a long-term rhythm where a period of above average returns tends to be followed by a period of below average returns. We demonstrate that this long-term stock market rhythm moves in lockstep with corresponding long-term economic, social, and political rhythms in the US. Assuming that the past relationship between these rhythms will hold unaltered in the future, we provide the medium to long-term stock market outlook.