A Review of the Market's Best Decade Since WWII (and What To Expect for 2020)
December 30, 2019
By Michael List, CFP®
There are usually enough events in any given year to cover for a year in review (and this past year is no different). Although, given that we are also closing out a decade, I felt compelled to include headline events over the past 10 years that affected markets and the economy.
A Look Back at the Past Decade
As long as I don’t jinx it, the market is within striking distance of it best yearly return since 1997 which would cap off the best decade, in terms of risk adjusted return, since World War II. The S&P index has nearly tripled in value (excluding dividends) since 2010 and closed at a new record high 242 times.
Ten years ago, it was hard to predict where we would be today. The decade started as we were crawling out of the depths of worst economic crisis since the Great Depression. At the time, many analysts were concerned about the prospects of another recession soon to follow, known as a double dip recession. Of course, the double dip never took place (at least in the U.S.) and the recovery has become the longest expansion in U.S. history.
However, like all expansions, it wasn’t without bumps along the way. The events over the past 10 years that captured our attention and affected the economy and markets in varying degrees include:
- Occupy Wall Street
- The U.S. Government losing its AAA credit rating
- Several government shutdowns (including the longest in history)
- Too many data breaches to mention
- The BP deepwater Horizon oil spill
- Brexit vote
Many of these events had a temporary impact on the market, but fell into the footnotes of history much faster than it seemed they would at the time.
Looking Ahead to 2020
As we forecast the next one and 10 years, we are balancing what we know today with what we expect to happen, along with things we don’t expect but still could happen. The economy is still growing and could accelerate modestly following several quarters of easing financial conditions and lower interest rates. Valuations are elevated, but their impact is more pronounced in the long term. Shorter-term markets often follow strong years (like 2019) with a positive return. 2020 will bring more attention grabbing headlines including the presidential election and trade negotiations.
2020 could start what will likely persist through the rest of the decade: modest returns with higher volatility. Given the market strength in 2019, low interest rates and the potential for stronger growth, stocks should provide another good year for investors. Volatility will pick up again next year, as it always does prior to an election. Volatility will almost certainly be higher over the next decade, especially compared to the past 10 years (a period of strong returns, low volatility and no recession).
As we have written about in the past, market returns are unlikely to repeat the past 10 years. Data from IBES (Institutional Brokers’ Estimate System) shows the market's valuation (price/operating earnings) increased from 14.5 in 2010 to 18 today. At this level, stocks have historically provided positive, but lower future returns than average.
Schedule an appointment to talk to us further about the markets, your financial goals and how we can help keep you on track to achieve them in the next year — and decade — to come.