The U.S. stock market has been on fire of late.
But it doesn’t feel like we’ve entered the euphoric phase of investor psychology just yet. In fact, many prognosticators have been lowering expectations.
Goldman Sachs put out a research piece that posits the S&P 500 could return just 3% annualized over the next 10 years (just 1% after inflation):
These are their baseline assumptions and they offer a range of potential outcomes but that would be a rough decade for stock market investors. Goldman also estimates a more than 70% chance that U.S. Treasuries will beat stocks in that time frame.
The usual caveats apply here. Predicting future returns is hard. Goldman Sachs doesn’t know the future any better than you or I do. People have been predicted below-average returns since the start of this epic bull market run.
Now that the disclaimer is out of the way, I was curious how often this has occurred historically so I looked at rolling 10 year returns for the S&P 500 going back to 1926:
It’s rare to see such low returns over a 10 year stretch but it can happen. Roughly 9% of all rolling 10 year annual returns have been 3% or less.
It is worth noting that there are some similarities in the three instances in which this has happened in the past. Those below-average returns all occurred in or around some of the worst economic times of the past 100 years or so — the Great Depression in the 1930s, the stagflation of the 1970s, and the Great Financial Crisis.
You would think there would have to be a pretty nasty financial crisis for this to happen. That’s not out of the realm of possibilities, but there is typically a reason for bad times like this.
