Deutsche Bank's 200-Year Study Shows Long-Term Stock Market Resilience Despite Current Valuation Concerns

This analysis is based on the MarketWatch report [1] published on November 5, 2025, which detailed Deutsche Bank’s comprehensive 200-year stock market study.

Deutsche Bank’s research team, led by Jim Reid, conducted an unprecedented analysis spanning two centuries of market data across 56 countries, providing compelling evidence for long-term equity investing despite current market concerns. The study found that over 25-year investment horizons, global stocks have underperformed “cash under the mattress” just 0.8% of the time, and even when adjusted for inflation, stocks have underperformed cash only 7.5% of the time over such periods [1].

The timing of this research is particularly relevant given current market conditions. The S&P 500’s forward price-to-earnings ratio recently topped 23, reaching its highest level in years and well above its historical averages [1]. Recent market volatility, including Tuesday marking the worst day on Wall Street since October 10, has been driven by concerns about lofty valuations and a selloff in speculative areas [1]. Current market data shows the S&P 500 ETF (SPY) at $677.57 with a P/E ratio of 28.61, reflecting elevated valuation levels [0].

: The research reveals that negative nominal 25-year equity returns are “exceptionally rare and largely idiosyncratic” [1]. Most instances of long-term underperformance occurred in specific historical contexts, such as Ireland during the early to mid-19th century, or Japanese investors who bought at the 1990 peak and waited over 30 years to recover [1].

: While long-term outcomes are overwhelmingly positive, the study acknowledges significant short-term risks. Over 5-year periods, 13.6% have seen stocks decline on a nominal basis, a pattern observed across nearly all markets [1]. This highlights the critical importance of investment horizon in equity investing.

: Deutsche Bank identified several concerning indicators in today’s market environment, including elevated CAPE ratios, high price-to-earnings ratios at multi-year highs, and historically low dividend yields (the S&P 500’s dividend yield has “almost never been lower”) [1]. These factors historically have been reliable indicators of impending weak returns.

: The research also compared stocks to other asset classes, finding that bonds have outperformed stocks over the long term 22% of the time [1]. However, the study warns that “entering at the wrong point in the fixed-income super-cycle can lead to extended periods of weak real returns” [1].

: Users should be aware that several current market factors may significantly impact short-to-medium term returns. Current P/E ratios at multi-year highs suggest potential for mean reversion [1]. Technology sector dominance could create systemic vulnerabilities if AI bubble concerns materialize. Low dividend yields combined with potential rate changes could affect equity valuations.

: Despite current valuation concerns, the 200-year analysis provides strong evidence that maintaining equity exposure over extended periods has historically been rewarded. The exceptionally low probability of long-term underperformance (0.8% nominally, 7.5% inflation-adjusted) suggests that patient investors are likely to be rewarded over time.

: Decision-makers should closely monitor CAPE ratio trends, dividend yield changes, sector rotation patterns, and the fixed-income super-cycle position [1]. Historical analysis shows that high valuations have been “one of the most reliable indications that stocks were about to enter a period of weak returns” [1].

The Deutsche Bank study provides crucial historical context for current market decisions. While short-term risks are elevated due to current overvaluation indicators and market concerns about AI bubbles, the 200-year dataset demonstrates that maintaining equity exposure over 25+ year periods has been overwhelmingly successful. The current combination of elevated P/E ratios (28.61 for SPY) [0] and historically low dividend yields mirrors conditions that preceded previous market corrections, suggesting caution for near-term returns while maintaining confidence in long-term equity outcomes. The research emphasizes that investment horizon is the critical factor in equity investing success, with negative long-term returns being exceptionally rare throughout market history [1].