The term “Lost Decade for Stocks” refers to the ten-year period from the end of 1999 to the end of 2009, when the S&P 500 generated an annualized total return of -0.9% over the period. This was only the second time the market, as measured by the S&P 500, has had a negative return over a ten-year period. The previous time was in the ’30s. It should be noted that some other popular indices had modestly positive returns during the first ten years of the 21st century.
The recent strength in the S&P 500, up more than 26% in 2023 and a very strong start in 2024, has given rise to speculation regarding the potential for a repeat of the “lost decade”. Mean reversion, the theory that asset prices eventually revert to their long-term mean or average level, is often mentioned in support of caution regarding the recent, above average, market returns.
Investors should be aware that some long-term studies suggest that the S&P 500 has grown at a compound average annual rate approximating 10%. While it is extremely unlikely that markets can continue to grow at an annual rate exceeding 20%, the timing and extent of any slowing in the growth rate is highly uncertain. Each investor’s time horizon and risk tolerance might dictate appropriate portfolio decisions. A review of your objectives, perhaps with the help of your advisor(s), might be appropriate.
All comments and suggestions are welcome.
Walter J. Kirchberger CFA
