Stock profit forecast - Gordon's equation

Since the S&P yields 2.2%, and its historic dividend growth rate is 4.3%, stocks are likely to produce a modest 6.5% return going forward.

A word of caution: Gordon's equation doesn't claim to predict moves in the market in the next month or year. This is a long-term indicator -- but one that you'll be far better off relying on than listening to the 24-hour financial news chatter.

In the 20th century, the equation forecast that stocks would return nearly 9% -- just shy of the S&P's 9.7% average annual gains since 1926. In the late '90s, soaring stock prices drove the S&P dividend yield down to 1.1%. While most forecasters assumed this momentum would continue, Gordon's equation predicted meager returns, though it underestimated just how poorly stocks would do.