Markets: An unexpected decade of prosperity
Hold the champagne: Investors don’t want this decade to end, said Lu Wang in Bloomberg Businessweek. “Stocks in the S&P 500 have returned 249 percent in the past 10 years.” That’s not just better than the historical average—it’s happened without the stomach-churning dips the stock market has delivered in other periods. Not every day was smooth sailing. “There was the May 2010 flash crash, Europe’s sovereign debt crisis in 2011 and 2012, and China’s currency devaluation in 2015.” But ultimately the 2010s turned out be “the first decade without a bear market”—the market never fell more than 20 percent from its peak. Even through a trade war and global recession jitters, “magically, the bull market has endured.”
In the near term, economists believe that “the more than decade-old bull market still has room to run,” said Martha White in NBCNews.com. Many of the experts who in the spring predicted a recession for 2020 have changed their tune, and last month’s robust jobs report has made economists much more optimistic. Most analysts now forecast one of three outcomes, said Paul Davidson in USA Today. Optimists envision the manufacturing sector springing back to life as the trade war fades. Pessimists note that consumer confidence and the share of Americans who say they are “planning to buy homes, cars, and appliances” have fallen. A partial trade agreement with China still leaves “a fog of uncertainty,” but the prevailing view is that the economy will keep growing in 2020—but modestly.
The next decade, though, is a different matter, said Nir Kaissar in Bloomberg.com. “The surprising rally from the rubble of the 2008 financial crisis has touched off a fierce debate about what fueled the resurgence.” There are a lot of theories: Did low interest rates “goose the market”? Were earnings boosted by stock buybacks? Was it hypergrowth for “a handful” of tech companies? The simplest explanation is just that U.S. companies had a very profitable decade. But profits are more volatile than most investors think, and “it’s unlikely that the last decade’s earnings growth will spill into the next.” Investors should “grit their teeth for a low-return decade,” said Robin Wigglesworth in the Financial Times. Interest rates are almost certain to rise, along with corporate tax rates. More Baby Boomers are retiring, “sapping economies of their vim.” Protectionist policies will remain popular. The “realistic assumption” is that the party is ending.
Then again, economists predicted that the last decade would be a long period of stagnation, said Greg Ip in The Wall Street Journal—and they “got the decade all wrong.” Even as the 2010s progressed, experts kept underestimating the recovery. Most economists expected unemployment “to bottom out around 5 percent.” Instead, it’s now at a 50-year low, and “likely headed lower.” The expansion of the past 10 years is “the longest since records begin in the mid-1800s.” Whether it marks a transformation in the economy or just a phase in the economic cycle is something we won’t know until another decade has passed. ■