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Why Warren Buffett's 1999 Market Warning Still Matters Today

Dec, 2017: Famous investor and economist Warren Buffett forecasts stocks maket changes

Key Points

  • Warren Buffett thinks the S&P 500 can be set up for a lost decade according to his 1999 warning, which is still valid in today's market.
  • Goldman Sachs analysts agree, which is why these income-focused stocks and growth companies could see better price action.
  • This is where Buffett is putting his money and where investors could also consider diversifying away from inflation.
  • 5 stocks we like better than iShares 20+ Year Treasury Bond ETF.

Whenever big Wall Street players speak on their market views, retail investors can revere engineer what these views and opinions actually mean. Today, a view (or rather, a warning) comes from Warren Buffett himself, though it was not issued recently. From the Berkshire Hathaway Inc. NYSE: BRK.B 1999 shareholder letter, a 2001 interview with CNN Money gave the rest of the market a glimpse of the future.

Turns out, he was right. Buffett called for what some may call a “Lost Decade” in the S&P 500, and from 2000 to 2012, the stock market returned roughly 3-4% on an annualized basis. At the same time, bonds and other income-focused investments like dividend stocks would have outperformed the market’s flattish path.

Before investors go through the factors making this warning as relevant today as it was back then, they should understand that it is income-focused assets like bonds through the iShares 20+ Year Treasury Bond ETF NASDAQ: TLT or dividend stocks like Altria Group Inc NYSE: MO and Prudential Financial Inc. NYSE: PRU will be the best place to be during the next decade; along with a bonus sector to keep in mind.

Altria Group and Prudential Financial Stocks Could See Strong Buying Pressure Soon

Not all dividends are the same. Those paid by companies thought to be safe and projected to remain stable and sound into the future will have certain preferences from investors. This is why considering Altria Group and Prudential Financial is key for the coming years.

Altria Group Today

Altria Group, Inc. stock logo
MOMO 90-day performance
Altria Group
$53.58 -0.26 (-0.48%)
(As of 05:45 PM ET)
52-Week Range
$39.25
$58.03
Dividend Yield
7.61%
P/E Ratio
9.05
Price Target
$53.33

With inflation threatening to come back into the U.S. economy, companies that can pass down their costs to consumers the easiest, keeping their cash flows big enough to afford ongoing high dividends, will be the ones that outperform most others not able to keep up with inflation.

Altria Group stock’s payout of $4.08 a share, which translates into a 7.6% annualized dividend yield, is a great place to start diversifying away from inflation. This high payout and business stability have recently boosted some analysts' valuations for the stock.

Deutsche Bank and Stifel Nicolaus boosted their valuations on Altria Group stock as high as $60 as of November 2024. To prove these new targets right, investors would have to ride the stock higher by 11.4% from its current price.

Prudential Financial Today

Prudential Financial, Inc. stock logo
PRUPRU 90-day performance
Prudential Financial
$118.56 +0.73 (+0.62%)
(As of 05:45 PM ET)
52-Week Range
$100.60
$130.55
Dividend Yield
4.39%
P/E Ratio
10.54
Price Target
$126.33

Then there’s the inflation protection from insurance businesses and their ability to raise premiums above inflation rates. This is where Prudential Financial stock comes into play, paying a dividend yield of up to 4.3% to keep up with potential inflation.

Knowing that financial and valuation growth could be the norm for Prudential Financial stock, Abrdn decided to boost its holdings in the stock by 4% recently, bringing its holdings up to $158.1 million today.

Why Buffett’s Current Market Concerns Have Driven Him to Cash

In 1999, Buffett was concerned about the share of corporate earnings as a percentage of GDP, which as only 6.3%. Today, that figure looks more like 11.5% compared to the 4% historical level Buffett quotes in the interview.

iShares 20+ Year Treasury Bond ETF Today

iShares 20+ Year Treasury Bond ETF stock logo
TLTTLT 90-day performance
iShares 20+ Year Treasury Bond ETF
$87.50 -0.81 (-0.92%)
(As of 05:45 PM ET)
52-Week Range
$87.34
$101.64
Dividend Yield
4.29%
Assets Under Management
$57.05 billion

What this means is that corporate earnings (or earnings per share) need to grow at high double-digit rates only to keep up with inflation and the near 5% being priced into the bond ETF already mentioned. This probably won’t be the case, and even if it is, high inflation and high bond yields will eat away most of the growth the S&P 500 can manage to deliver.

This is also why Goldman Sachs analysts have called for a lost decade scenario this time around, seeing only 3% annualized returns in the S&P 500, just like when Buffett said so in 2000. However, this doesn’t have to mean all stocks will underperform, as Buffett is still buying a select sector.

Energy stocks will likely do well during this period, as inflation and high bond yields help commodities like oil see higher prices. After buying up to 29% of Occidental Petroleum Co. NYSE: OXY and selling out of stocks like Apple Inc. NASDAQ: AAPL and Capital One Financial Co. NYSE: COF to go into his biggest cash holding in history, Buffett’s view is clear as day.

Now investors know that income-focused stocks like the ones on today’s list, as well as some of the best energy names, will help their capital survive this potentially lost decade scenario that both Warren Buffett and Goldman Sachs are calling for.

Should you invest $1,000 in iShares 20+ Year Treasury Bond ETF right now?

Before you consider iShares 20+ Year Treasury Bond ETF, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and iShares 20+ Year Treasury Bond ETF wasn't on the list.

While iShares 20+ Year Treasury Bond ETF currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

A Guide To High-Short-Interest Stocks Cover

MarketBeat's analysts have just released their top five short plays for January 2025. Learn which stocks have the most short interest and how to trade them. Click the link below to see which companies made the list.

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Gabriel Osorio-Mazilli
About The Author

Gabriel Osorio-Mazilli

Contributing Author

Value Stocks, Asian Markets, Macro Economics

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Berkshire Hathaway (BRK.B)
0.8575 of 5 stars
$454.35+0.3%N/A9.18Moderate Buy$457.50
Apple (AAPL)
4.729 of 5 stars
$255.27+0.3%0.39%41.99Moderate Buy$236.78
Altria Group (MO)
3.9705 of 5 stars
$53.58-0.5%7.61%9.05Hold$53.33
iShares 20+ Year Treasury Bond ETF (TLT)N/A$87.50-0.9%4.29%-7.14N/AN/A
Prudential Financial (PRU)
4.943 of 5 stars
$118.56+0.6%4.39%10.54Hold$126.33
Capital One Financial (COF)
4.2748 of 5 stars
$179.97+0.7%1.33%16.99Hold$171.50
Occidental Petroleum (OXY)
4.7103 of 5 stars
$47.84+1.5%1.84%12.46Hold$62.10
iShares 20+ Year Treasury Bond ETF (TLT)N/A$87.50-0.9%4.29%-7.14N/AN/A
Compare These Stocks  Add These Stocks to My Watchlist 


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