Connect with us

Company

Why the 2020s could favor market-timers over buy-and-hold U.S. stock investors

Published

on


To get an idea of what the next decade has in store for the U.S. stock market, think back a decade ago to December 2010. That’s not because the next decade will be like the last one; far from it. The reason to turn the clocks back 10 years is to appreciate just how unexpected the future often turns out to be.

In 2010, the trailing decade had been awful for stocks, and few dared to even fantasize that the subsequent 10 years would be one of the best for equities in U.S. history. But it was. Today the situation is just the opposite, and for that reason we should be prepared for the distinct possibility that the next decade will be as disappointing as the last decade was outstanding.

Ten years ago, investors were still reeling from two bear markets. At the beginning of December 2010, the S&P 500
SPX,
+1.37%

 traded just above 1,200, more than 20% lower than where it had stood at the October 2007 bull market high and at basically the same level where it was at the top of the internet bubble in March 2000. In inflation-adjusted terms the picture was even more grim: the S&P 500 in late 2010 was sporting an inflation-adjusted loss of more than 3% annualized over the trailing decade.

Contrast that with where things are today. The S&P 500’s 10-year inflation-adjusted total return is 11.9%, according to data from Yale University’s Robert Shiller. That’s better than 85% of all rolling 10-year periods since 1881.

Here’s why investors should expect below-average returns over the next decade: the historical data exhibit a strong reversal tendency. To show this, I calculated a statistic known as the correlation coefficient, which would be 1.0 if the best trailing decade returns were correlated with the best subsequent decade returns, and so on down the line. The coefficient would have been minus 1.0 if the best trailing returns were correlated with the worst subsequent returns, and so on, while a coefficient of zero would mean there is no detectable relationship between the two.


The stock market’s return between now and the end of 2030 is not guaranteed to be below average. But the odds are strong that it will be.

When focusing on all months since 1881 in Shiller’s database, I calculated this coefficient to be minus 0.35, which is strongly significant at the 95% confidence level that statisticians often use when assessing whether a pattern is genuine.

Notice that the coefficient is not minus 1.0, which means that only a minority of the stock market’s subsequent 10-year return is explained by its trailing 10-year return. So the stock market’s return between now and the end of 2030 is not guaranteed to be below average. But the odds are strong that it will be.

If not stocks, what else?

What about other asset classes? Take a look at the chart below, which plots each asset’s annualized inflation-adjusted return over the last decade against its long-term average. The asset that performed the worst since 2010, relative to its historical average, was gold, followed closely by international stocks and U.S. bonds.

Unfortunately, the reversal tendency that exists in the U.S. stock market is not nearly as strong in these three other asset classes. So it would be going too far to recommend that you allocate your entire portfolio to gold, international equities and bonds for the next decade. Still, a shrewd contrarian bet would be to reduce your U.S. equity exposure in favor of one or more of these other asset classes.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More:Here are your odds that stock prices will be higher at the end of 2021

Plus: Most bond-fund managers do well when interest rates rise, but that’s no reason to invest with them



Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Company

These money and investing tips are timed for a bull market that looks short on time

Published

on

By


Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can help you prepare your portfolio as stock buyers become more skittish and financial markets grapple with a less-friendly Federal Reserve — which savvy investors know not to fight.

Sign up here to get MarketWatch’s best mutual funds and ETF stories emailed to you weekly!

INVESTING NEWS & TRENDS
Odds favor the Dow being higher at the end of 2021 and 125 years of history supports this

Second half of the year tends to be strong for U.S. stocks.
Odds favor the Dow being higher at the end of 2021 and 125 years of history supports this

Why a crash in meme stocks AMC and GameStop looks more likely now

Heavy insider selling is a warning sign that a stock’s price is inflated.
Why a crash in meme stocks AMC and GameStop looks more likely now

What lumber and gold prices tell us about the stock market’s next move

Commodities have an effect on stocks but the one to watch is platinum.
What lumber and gold prices tell us about the stock market’s next move

5 smart ways to shift your investments as the Fed gets ready for a big move

Be careful with meme stocks and bitcoin.
5 smart ways to shift your investments as the Fed gets ready for a big move

The real culprit for the selloff in the stock market? It wasn’t the Fed

The Federal Reserve was just the spark; the tinder was the excessive bullishness of market-timing traders
The real culprit for the selloff in the stock market? It wasn’t the Fed

Buybacks may prop stock market rattled after Fed meeting

‘It’s a way to look like they’re earning more than they actually are,’ says one analyst about companies doing buybacks.
Buybacks may prop stock market rattled after Fed meeting

Buy these 6 types of stocks next as Big Tech falters and inflation falls, says Swiss bank UBS

The group at the Swiss bank identifies two major trends ahead.
Buy these 6 types of stocks next as Big Tech falters and inflation falls, says Swiss bank UBS

To Roth or not to Roth? Part II

Further discussion of research that challenges the conventional wisdom.
To Roth or not to Roth? Part II

If the SEC OKs bitcoin ETFs, it would be encouraging the most obvious speculative bubble in modern times

Crypto doesn’t belong in your IRA or 401(k).
If the SEC OKs bitcoin ETFs, it would be encouraging the most obvious speculative bubble in modern times

The road to regulating crypto

SEC Commissioner Hester Peirce on how the U.S. government can effectively approach regulating bitcoin and other cryptocurrencies. The views expressed by Peirce are her own views, not necessarily those of the SEC or her fellow commissioners.
The road to regulating crypto

What are the Dow, S&P 500, and Nasdaq? | How to Invest

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite are indexes that measure the performance of the stock market. Here’s how each is used and what insights they provide for investors.
What are the Dow, S&P 500, and Nasdaq? | How to Invest

Why women investors are like Warren Buffett

Rupal Bhansali, chief investment officer of Ariel Investments, explains at the WSJ Women In Series why women investors trade more conservatively and how that is a good thing.
Why women investors are like Warren Buffett



Source link

Continue Reading

Company

These money and investing tips can help you with stock and bond strategies to whip inflation

Published

on

By


Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can help you prepare your portfolio for a period of higher inflation — transitory or not.

Sign up here to get MarketWatch’s best mutual funds and ETF stories emailed to you weekly!



Source link

Continue Reading

Company

These money and investing tips can shine some light through the stock market’s ‘June gloom’

Published

on

By


Don’t miss these top money and investing features:

These money and investing stories, popular with MarketWatch readers over the past week, can help your decision-making if the market outlook becomes cloudier and momentum starts to fade — even as the outlook for the post-pandemic economy gets clearer.

Sign up here to get MarketWatch’s best mutual funds and ETF stories emailed to you weekly!



Source link

Continue Reading

Trending