“Tepid” has been “kind of the word for the decade so far” when it comes to the stock market, Bob Maynard, chief investment officer for the Public Employee Retirement System of Idaho, told lawmakers today. “This year, as I speak, the capital markets outlook is warmer than it was previously but still in the tepid range,” he said. “’Luke-warm’ might be a good way to say how the markets are looking at their prospects going forward.”

A recession doesn’t look likely for the next few years, he said, though one could be in the offing five years out, according to some indicators. Over “the next year or two or three,” U.S. equities likely will bring returns in the 8 to 9 percent range, he said. “U.S. bonds will continue to be overall dead money,” with earnings at only 2 percent, roughly at the inflation rate. Commodities seem to have bottomed out, he said, as have emerging markets.

“There don’t seem to be any bubbles forming at the moment,” Maynard said. “If you look at the standard ones that people are always worried about – tech, homes , gold , oil … they seem to be in line with historical ranges and not at those extreme ranges.”

Maynard threw cold water on the idea that Donald Trump’s election sparked a jump in the stock market. “No doubt there was a change in tone with regard to how people were viewing the future,” he said. “But you also will notice that it also came at a time, starting in November, in a period that we had very positive economic numbers that were much better than people were expecting going into the end of the year. And as soon as those numbers started to be a little less positive, that’s when the ‘Trump rally’ started to blow over.”

Maynard said he thinks there won’t likely be a “sustained Trump effect” on the markets until mid-summer. “By summer time, we’ll have a relatively clear picture on the international trade, on the regulatory front, on the infrastructure plays, what the timing might be, and the tax structure,” he said.

He noted, “What we’re talking about here is not economic growth. What drives the market, bonds and stocks, is driven by profits and earnings, which tend to follow over the long term GDP growth, but not in lockstep. ... That’s one of the dangers or one of the advantages of the stock market.”

In the past calendar year, he said, PERSI had a return of 7.95 percent. “For the next one to two years, the environment’s going to be warmer than it was in the last few years,” he said, “unless we get some real surprise coming in.”

He noted that in all but two of the past 10 years, there’s been a European crisis in the spring that affected markets. “Last year, we were right on track to have a good year, and then you had the Brexit temporary down-drop.”

Maynard said, “It’s expectations, not current conditions that really drive the markets. ... If things go on as expected,” without any big surprises, “the stock market will kind of drift upwards at a reasonable rate.”

He said he’s not buying “doom and gloom” predictions that “the next five to 10 years is going to be a disaster for the capital markets. No, it’s not,” he said. “There is nothing in the markets right now that indicates that any radical adjustment to one’s long-term investment plan is called for. … We just don’t see it, the markets don’t see it.” He added, “The markets may be wrong. You may have another European crisis, you may have something unexpected occur.” But, he said, “There could be positive surprises as well.”

The charts from his presentation are available online here.

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