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3 Takeaways From the 2010s

By: Craig Fehr, CFA February 11, 2020

The decade has ended with the stock market capping off an extraordinary 10-year stretch. This may have you thinking either “all good things must come to an end” or “let the good times roll.” In our view, both are valid.

You may have heard some people saying, “This time it’s different” – but history has taught us that those can be dangerous words when it comes to the markets. So what does this past decade tell us about the next one?

A Quick Recap

This decade started off from the ashes of the financial crisis and finished with a strong rally to record highs. The 2010s were characterized by a slow-but-steady economy, record-low rates and above-average stock market returns.

The path wasn’t smooth, however. This past year was a good example. December 2018 saw a sharp stock market selloff as recession fears rose. Fast-forward to December 2019, and the market was ascending to new highs on economic optimism. We were optimistic coming into 2019, but the 31% stock market gain was the second-best year of the past decade, well exceeding our expectations. So what was behind the market’s better-than-250% return over the past 10 years?

1. Absence of a downturn drove the market’s upside.
This past decade was unique in that it was the only one on record not to experience a recession, and only the second decade not to experience a bear market, which is a drop of 20% or greater. For perspective, the market has experienced a bear market on average about once every 3.5 years. We don’t think the coming decade will avoid a recession, but fortunately, we don’t see one coming soon. Current economic and market conditions are starting us off on the right foot.

2. A decade’s DNA shapes its performance.
Broad trends in the economy and financial markets have shaped investment performance over the decades. This is why fundamental conditions, such as economic growth, corporate profits and interest rates, receive the heaviest weight in our market outlook.

  • In the 1950s, it was post-war industrialization that led to strong growth in the following decade.
  • High inflation and stagnant growth of the 1970s gave way to a rising consumer in the ’80s.
  • The ’90s internet boom was followed by rising housing debt in the 2000s.
  • The sluggish but persistent growth of the 2010s, which was shaped by extraordinary central bank stimulus, has provided a decent starting point for the 2020s.

We don’t expect a repeat of last decade, but the economy, corporate profits and interest rates are all in reasonably favorable positions.

3. A longer-term approach has been successful.1
Calendar years and decades provide tidy bookends for evaluation, but keep in mind that even though we’re moving from one decade to another, this is just a reference point in time. Market cycles and, more importantly, your investment goals don’t align neatly to 10-year windows.

Looking at rolling 10-year periods since 1940, the S&P 500 delivered a positive return for more than 97% of that time frame. In addition, a well-diversified portfolio including bonds, which have historically risen during stock market declines, helps to smooth the performance of portfolios over time.2

Timing matters, of course – but use the timeline of your financial goals, rather than the calendar, to gauge your performance.

We can help

With the strong gains in the market, now may be a good time to touch base with your financial advisor. As the market shifts over time, your investment mix may have shifted as well. Your financial advisor can review your financial goals and help ensure your portfolio aligns with your comfort with risk and required long-term return.

Important Information:

1 Source: Morningstar Direct. Past performance is not a guarantee of what will happen in the future.

2 Source: Morningstar Direct, 1/1/1940-12/31/2019. Results may vary for a portfolio with similar holdings. The hypothetical portfolio consists of 100% stocks represented by the S&P 500 Total Return Index. Indexes are unmanaged and are not available for direct investment. Investing in stocks involves risk. The value of your shares will fluctuate, and you may lose principal. The prices of bonds can fluctuate, and an investor may lose principal value if the investment is sold prior to maturity.

Past performance of the markets is not a guarantee of how they will perform in the future.

This information is for educational and illustrative purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.

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