This suggests that while US stocks may still outperform bonds, further gains are likely to be more muted and returns over the long term are unlikely to be in double-digit territory.
The good news is that valuations look much more reasonable outside of the United States. Currently, US stocks trade at a 45% premium, based on a price-to-book calculation, to other developed markets. Emerging markets are cheaper still. As such, for long-term investors, the best opportunities may lie outside the United States and in less extended parts of the US market such as in mega caps, and in the energy and technology sectors.
These asset classes are accessible through the iShares S&P 100 Index Fund (OEF), the iShares Dow Jones U.S. Energy Sector Index Fund (IYE) and the iShares Dow Jones US Technology Sector Index Fund (IYW).
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist.