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The decade has drawn to a close and the stock market sprinted through the tape to finish an extraordinary 10-year stretch. Building from the ashes of the financial crisis and ending 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. As we turn the page to the '20s, here is some perspective on the past decade and three takeaways for investors.
With a 256% return, the last ten years' stock market was strong, but still ranks fourth among the past seven decades. The 400% returns of the '50s, '80s and '90s highlight the remarkable growth of those periods, but the 2010s were still a standout, as this was the only decade on record that did not experience a recession and just the second decade not to experience a bear market (the '90s was the other). 2019's 31% total return was the second-best year of a decade and the second-strongest finale to a decade since the 1930s, trailing only 1989's 32% gain. Interestingly, the final years of past decades have been particularly strong, with half of the last eight decades finishing with more than a 20% annual gain. In those instances, returns in the first year of the next decade were mixed. When economic growth continued, gains persisted. In the instances when a recession emerged, market performance suffered. Fortunately, we think current conditions are starting us off on the right foot for the 2020s.
Source:Bloomberg, Morningstar. S&P 500 index total return and 10-year U.S. Treasury rate (50's average beginning in 1953).
Past performance is not a guarantee of what will happen in the future.
Broad secular and cyclical trends in the economy and financial markets have shaped investment performance over the decades. This is consistent with our view that fundamental conditions (economic growth, corporate profits and interest rates) should garner the heaviest weight in the market outlook. We maintain a fairly positive outlook for 2020, supported by still-favorable fundamentals. We don't anticipate a recession in 2020, but we believe the coming decade will likely see one. Looking at the '20s, while impossible to predict with specific precision, we think secular trends such as automation, A.I. and demographic shifts will combine with cyclical factors such as low interest rates, evolving inflation trends, moderate economic growth, more prominent central bank intervention and swings in global financial markets to shape investment performance. For perspective, prior decades were influenced by a variety of conditions:
Investment goals and market cycles don't simply align to 10-year windows, but this does demonstrate the importance and value of a longer-term perspective.
*Source: Morningstar Direct.
Past performance of the markets is not a guarantee of what will happen in the future. Diversification does not guarantee a profit or protect against loss in declining markets.
Investing in equities involves risks. The value of your shares will fluctuate and you may lose principal.