Trying to tame rampant inflation, the Federal Reserve has slammed the brakes hard by recently raising the discount interest rate by another .75%. More importantly, they promised to aggressively fight inflation by raising rates over the next year by as much as an additional 1.00-2.00%. In response, the stock market took a dive, with the S&P 500 down more than 22% so far through September 24, 2022.

Even after the recent decline in stock prices, stock valuations remain high. The cyclically adjusted price earnings (CAPE) multiple for the market currently stands at 29. While this is well below the recent peak of 38 in December 2021, it’s substantially above the long-term average of 16. While CAPE multiples don’t predict short-term market movement, they do have a high correlation with long-term returns. Historically, when valuations were this high, future 10-year stock returns have been well below the 8-9% long-term average.

What to do? Should you continue to follow the standard advice to rely on stocks to produce the best long-term returns, or