Ten Pretty Good Years

The 2010s are ending in a few days. This chunk of time happens to be the first full set of 10 years in which I participated in the US economy as a normal working adult, and, pleasantly for me, also happens to have featured fantastic stock market performance. As this particular hashmark on the timeline of US financial history approaches, I happen to be in the middle of reading "Bull" by Maggie Mahar, a history of the spectacular bull market culminating in the year 2000 dot-com bust, and yeah, it's hard not to notice some parallels with the current environment. Her narration of a wild and massively profitable decade for the US stock market could easily describe my impression of the last 10 years. Only it isn’t Mahar's account of the mom and pop-driven speculative boom of the 1990s that I have in mind, but rather that of the unexpected and insular bull market of the 1980s. Like the currently ending decade, the 80s were a time when gobs of money were made on Wall Street, but the average US citizen hardly seemed to notice, much less participate. As Mahar writes: On Wall Street, in the mid-eighties, the dealmakers danced while the shorts looked on askance, but, by and large, individual investors stayed home. The roaring bull of the 1980s seemed not just detached from public attention, but even from the actual US economy. Mahar again: In many ways, Wall Street’s surge seemed strangely self-contained. Although share prices rose by more than 200 percent, national output increased barely 40 percent before inflation - and only 20 percent after inflation was taken into account. Sound familiar? US stocks have returned over 13% annualized over the past 10 years, while nominal US GDP has only grown about 4% per year over that time (as of Q3 2019, from FRED). More telling than the numbers, though, is the sentiment. For the past decade, the stock market has relentlessly risen, unemployment steadily fallen, and every other economic chart pointed up and to the right, but no one has been particularly excited about it. Pessimism has been the prevailing mood for pretty much the whole decade, and not even a 30% gain for the S&P 500 to close out the years starting with 201- has changed that. The title of this Washington Post article is a pretty good specimen: "Don’t Expect the Roaring ’10s for Stocks to Repeat in the ’20s" According to the same source, the sentiment was pretty similar in December 1989. From another Post article bearing an uncannily similar headline, "The Stock Market From The Roaring '80s To The Sober '90s": "It is a kind of joyless prosperity," said Ed Mathias, managing director of mutual fund giant T. Rowe Price in Baltimore. "Looking at the markets you would think people would be ecstatic -- but they are not." The best indicator of the mood at the close of the 2010s though is no commentary produced by Mahar, the Washington Post, or any other professional typer, but rather what I’m hearing about the stock market from my friends and relatives. The market is up over 30% for the year, has returned over 13% annualized for the decade, and while #fintwit is all over it, nobody I know seems to even be aware. I don't have any particular insight into what the next 10 years will bring. But I do know that the last 10 have some striking qualitative and quantitative similarities with the 1980s, and we all know what followed that decade. So despite general high valuations, a long period of economic expansion, and a large number of tech stocks trading at price-to-something-other-than-earnings multiples, I don't think it's possible to rule out another 10 years of good or even great stock returns. The market has come this far largely without participation, much less excitement, from the general public. If they show up to the party, late as usual, it could go quite a bit further.