As the calendar turns from 2019 to 2020 and we embark on a new decade, I thought it would be a valuable exercise to take a cursory look back on the decade that was in financial markets and contrast it with the decade that preceded it, the 2000s. The chart below displays the annualized performance of a variety of market segments over the 10-year periods that ended on December 31, 2009 and on December 31, 2019.
What a difference a decade makes!
At the dawn of the 2010s, investors taking stock of the prior decade observed:
- US stocks as a whole had posted a negative return for the full 10-year period,
- Small-cap stocks had handily outperformed large caps,
- Value stocks had outpaced growth stocks,
- International stocks had modestly outperformed US stocks while emerging markets stocks had trounced their US counterparts, and
- Commodities registered returns that had been bested only by those of emerging markets stocks among the major asset classes shown.
During the subsequent 10-years, in the 2010s, just about all of these trends reversed. As the chart above demonstrates:
- US stocks delivered a historically strong decade,
- Small-caps trailed large-caps,
- Growth markedly outperformed value,
- International and emerging markets lagged badly, only modestly outpacing bonds, and
- Commodities significantly disappointed.
Just as was the case ten years ago, I’ve seen and heard many investors—individuals and professionals alike—extrapolating the trends of the past decade into the future. Not surprisingly, the two most prevalent sentiments I hear today are investors’ collective expectations for: (1) large cap growth stocks to continue to be the darlings of the market, and (2) international and emerging markets stocks to continue to trail the US.
History suggests that expecting the trends of the past decade to persist through the next is misguided. That said, it’s important to recognize that market trends don’t follow set time schedules and that it’s far from a sure thing that coming decade will be the opposite of the one. However, investors would be wise to remember just how different the 2010s were from the decade that preceded it and how many of the “sure thing” trends from the 2000s ended up being not so sure after all.
All index return figures from Dimensional Fund Advisors
Market segment index representations:
US Stocks: S&P 500 Index
US Small-Cap Stocks: Russell 2000 Index
US Value Stocks: Russell 3000 Index
US Growth Stocks: Russell 3000 Growth Index
International Stocks: MSCI World ex. USA Index (net dividend)
Emerging Market Stocks: MSCI Emerging Markets Index (net dividend)
US Bonds: Bloomberg Barclays US Aggregate Bond Index
Commodities: Bloomberg Commodity Total Return Index
Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. All performance referenced is historical and is no guarantee of future results. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risk including loss of principal. Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal, and potential liquidity of the investment in a falling market.
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The opinions expressed herein are those of Kathmere and may not actually come to pass. This information is current as of the date of this material and is subject to change at any time, based on market and other conditions. Index performance used throughout is intended to illustrate historical market trends and performance. Indexes are managed and do not incur investment management fees. An investor is unable to invest in an index. Past performance is no guarantee of future results.