S&P 500 will return just 3% a year for the next decade, top strategist warns

Rob Arnott warns that shareholders in U.S. big-caps will make one-fifth the returns over the next 10 years they pocketed since 2016, and those meager gains will barely edge the consumer price index. You may want to take a cold shower, or a shot of tequila, before you hear the convincing logic behind his dour prediction.

Arnott is the founder and chairman of Research Affiliates, a firm that oversees strategies for nearly $200 billion index funds and ETFs for the likes of Charles Schwab and Invesco. He served as editor-in-chief of the Financial Analysts Journal in the early 2000s, and today comanages the Pimco All Asset and All Asset All Authority funds. He’s also the father of “fundamental indexing,” the practice of weighting stocks by their size in the economy rather than chasing expensive “winners” by ranking according to market cap. At RA, Arnott has bred a think tank in its own right featuring sundry PhDs who apply advanced statistical research to forging benchmark-beating vehicles.

So I check frequently with Arnott to get his take on what those buying into the S&P 500, or baskets of big-cap U.S. stocks, are likely to reap in the years ahead. It’s an especially good time to get a sober reading. The S&P has dropped 4.4% from its record close in January, and the Iran war and jump in oil prices and Treasury yields following the attack are raising a new cloud of pe...