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Was 2019 a Fluke Year? Thumbnail

Was 2019 a Fluke Year?

Mike Earl, CFP®, CPWA®

The bull market lives on. This bull market had near deaths in 2011 and 2018 – each time narrowly escaping the 20% decline threshold that defines a bear market (and thus ends the bull market).

The S&P 500 Index (comprised of the ~ 500 largest publicly-traded companies in the US) finished 2019 up 31.5% – when you include reinvested dividends. A fantastic year of growth for stocks in the US. 

Other than a 6.6% dip in May/June and a 6% decline in August, the US stock market had a fairly consistent march higher this past year.

With returns like this, you would expect investors to be piling into stocks right now. But they’re not. According to JPMorgan, retail investors will have added $850 billion to bond funds in 2019, while pulling $360 billion out of equity funds. This is the highest level of outflows since the 2008/2009 Financial Crisis.

It’s natural to wonder whether the US stock market has gotten ahead of itself. While that is certainly possible, we must also point out that outsized calendar-year returns in US stocks are not that uncommon at all. Consider the following statistics for US stocks dating back to 1928:

Of these six return clusters, by far the greatest frequency is years of 20% or better calendar-year returns.
  • 33 years (out of 92 years total) of 20% or better annual returns. That’s nearly 36% of the calendar years since 1928. You have had better than a 1 in 3 chance of returning 20% or more in US stocks.
  • 52 years (out of 92 years total) of 10% or better annual returns. You have had a better than 1 in 2 chance of being up 10% or more in US stocks since 1928.
  • Only 27% of the years experienced a negative total return in US stocks (25 out of 92 years).
  • Only 6 times (6.5% of the time) did US stocks experience a decline of 20% or worse for a calendar year.
  • If the 31% year-to-date return holds up, this would be the 16th-best single year for US stocks since 1928. In other words, it’s been a very good year, but not exactly an outlier year. It’s a top-quintile year relative to the past 92 years.

A betting man would take these odds…

While the long-term numbers look great, stocks can be very volatile over shorter stretches of time. Our collective investing psyches were seriously wounded by the two terrible bear markets of the past 20 years: 2000-2002 and 2008-2009:

Two nasty drawdowns in just the past 20 years.

If you had invested $10,000 in the S&P 500 Index back at the start of 2000, it would have taken you until early 2012 to definitively break above $10,000 again:

The final number looks good, but the first 12 years were brutal.

Your initial $10,000 investment would now be worth over $32,000. That’s good to see, but hindsight makes this look like an easier process than it was. It sure was painful those first 12 years of this 20-year period, especially following the epic crash of 2008-2009.

It’s not easy to stay the course. But when you are armed with a knowledge of stock market history and an optimistic life philosophy, you are much better equipped for investing success.


1) http://pages.stern.nyu.edu/~adamodar/

2) https://www.cnn.com/2019/12/26/investing/premarket-stocks-trading/index.html


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