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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:
The TSX returned 95% over the last ten years while the S&P 500 returned an even-stronger 256%. The S&P 500’s 400% returns of the ’50s, ’80s and ’90s highlight the remarkable growth of those periods, but the 2010s were still notable as this was the only decade on record that did not experience a U.S. recession (Canada’s economy contracted briefly in 2015), and just the second decade not to experience a bear market in the S&P 500 (the ’90s was the other). 2019’s 23% gain for the TSX made it the best year of the decade, while the S&P 500’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. With a strong finish in 2019, we think current conditions are starting us off on the right foot for the 2020s.
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-favourable fundamentals. We don’t anticipate a recession in 2020, but the coming decade will probably 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.
Sources: 1. Stock market measured by the total return of the S&P 500 index.
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