It’s funny how a pretty good decade for stocks can sneak up on everyone while they focus on an underperforming economy, bipartisan political masochism and financial crises (both past and prospective).
But a decent decade of returns is exactly what stock investors experienced over the past ten years, without necessarily knowing it. The total annual rate of return for the Standard & Poor’s 500 index (including dividends) during the decade that ended Feb. 28 was 8.24%.
This places the past decade’s performance by large U.S. stocks roughly in the middle range of all ten-year periods since the 1930s -- even as most investors seem to believe that stocks have been dead money at best over that span. The average trailing ten-year annual return for the S&P 500 since the mid-1930s is 10.5%, says market strategist Keith Lerner of SunTrust Bank.
The decent appreciation of the past decade has much to do, of course, with the particular patch of the calendar that we are now passing through. Exactly a decade ago, in March 2003, the market was testing its bear-market lows of the tech-stock bust, while nervously awaiting the U.S. invasion of Iraq.
The market went on to double to its 2007 high, be cut in half during the 2008-2009 financial panic and recession, and since march 2009 has gained 140%. Along with a rising dividend stream over most of that span, these two bull markets wrapped around a collapse have produced the aforementioned average of 8.24% a year.
By reaching the 10th anniversary of that moment before the mid-2000s bull market took off, we’ve also come to a point where the trailing ten-year return has nosed above the trailing 20-year figure – meaning that, for the first time in a long while, the past decade was better than the one before it.
According to FactSet data compiled by the Philadelphia investment manager AJO Partners, the comprehensive Dow Jones US Total Stock Market index delivered 9.13% annualized over the ten years through February, slightly ahead of the 8.61% for the trailing 20 years, which began with Bill Clinton’s first weeks in office.
The fact that the past ten years have been decently profitable for investors who stood pat represents a swift comeback from the equities’ woeful stretch culminating in the March 2009 liquidation climax, when the trailing ten-year return was a 3.4% annualized loss.
This recovery to respectability is thanks to the outsized gains produced by the present four-year uptrend, which ranks as the sixth-best bull market of all-time, according to BofA Merrill Lynch.
Of course, graded on a proper curve, the past decade’s rewards might hardly seem satisfactory, or worth the intervening pain. The terror of the crushing bear market, the dependence on unprecedented government and central-bank intervention, the slow bleed of equity wealth to inflationary forces – for many, even 8.24% a year before taxes will seem insufficient compensation.
For equity partisans, though, this does illustrate two central selling points of stocks for those with the time and gut to allow the forces of long-term mean reversion do their work. There has never been a single 20-year span in which U.S. stocks have lost value.
Of course, there is a downside to the fact that stocks since 2003 have performed only a bit below the historical average. Back in 2008 and 2009, the prior ten-year results were so lousy relative to history that an investor looking for the will to “buy low” needed only to have faith that the long-term average would again be approached in coming years. Now, those tailwinds carrying market returns from the extremes toward the long-term average are not nearly as strong.
Looking back over the past eight decades, the previous two times the market recovered from the depths of terrible bear markets to place ten-year returns around current levels were the late 1930s and late 1970s. In both instances, the prior market lows were never revisited -- but there were some tougher, knockabout years to contend with before stocks came to a longer-lasting liftoff phase.
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