Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Gold Price Trend Forcast to End September 2019 - Video - 25th June 19
Today’s Pets.com and NINJA Loan Economy - 25th June 19
Testing the Fed’s Narrative with the Fed’s Data: QT Edition - 25th June 19
What "Pro Traders" use to Find Profitable Trades - eBook - 25th June 19
GDX Gold Stocks ETF - 25th June 19
What Does Facebook’s LIBRA New Crytocurrency Really Offer? - 25th June 19
Why Bond Investors MUST Be Paying Attention to Puerto Rico - 25th June 19
The Next Great Depression in the Making - 25th June 19
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

The Decade of Zero Investment Returns, Part I

Stock-Markets / Stock Market Valuations Jul 09, 2008 - 01:49 PM GMT

By: Adrian_Ash

Stock-Markets

Best Financial Markets Analysis Article"...Ten years here, a decade there, and pretty soon you're losing real wealth hand over fist..."

WHAT A DIFFERENCE a decade can make! Over the last 10 years of the 20th century, anyone buying and holding US stocks made a total return approaching 18% per year.


Their initial stake, as a 2002 research paper noted, increased five times over. Now that's real money!

But roll forward ten years, and the total return on the S&P500 was actually negative for the decade ending on 30th June 2008 .

Yes, you read that right. For the 10 years to last Monday, the S&P index delivered less than zero. That's even after accounting for dividends (good) as well as inflation (bad).

US equity buyers just suffered a "Decade of No Returns" in short. Looking back to the late Nineties from the late Noughties, it barely seems possible.

The S&P enjoyed two strong bull markets during that time. The first added nearly 50% in the 18 months following July '98; the second delivered more than 87% in the five years to Sept. '07. All told, the S&P rose in 69 months out of 120 – and yet anyone holding the 500 stocks included in Standard & Poor's index just wound up with a total return of sweet fanny adams.

Whatever happened to holding stocks for the long term?

"[The Noughties] are well on the way to being the worst decade for stocks since 1930-40, back when things were really messy," says the Wall Street Journal . It cites a note from Richard Bernstein, chief investment strategist at Merrill Lynch, who spotted this Decade of No Returns last week.

Even "the somewhat more-bullish Tobias Levkovitch, chief US strategist at Citigroup, pointed out recently that the S&P 500 returned just 1.66% from 2000-2007," the Journal goes on.

"He notes that all of the returns so far this decade have come from dividends; price return is slightly negative."

Dividends remain crucial to stock-market investing, in short. Ever more crucial, in fact...and perhaps more crucial still than either Bernstein or Levkovitch dare guess.

It should little surprise us. But while US equity investors saw the S&P's valuation rise more than four times over during the 1990s, its 500 constituent stocks didn't actually pay out four times as much in dividends each year.

Indeed, the capital gains enjoyed by Nasdaq and S&P owners between Jan. 1990 and the end of 1999 came at the cost of decent yields offered to new stock-market buyers. That decade saw dividend yields on the S&P fall in half, according to data from Robert Shiller at Harvard University – down from 3.3% to below 1.15% per year.

Any wonder the derriere eventually fell out of the "Long Boom" at the start of this decade? By way of comparison (and as marked on BullionVault 's chart above) the long-run historic average sits nearer 4.3%.

That's the long-run average running back 120 years and starting in January of 1888.

The equity bull market of the 1990s, in other words, stands out as something of an aberration...an "outlier" event as dramatic in its own way as the stock-market wipe-out of the 1930s. But while the Great Depression took stock prices so low, dividend yields shot up towards 14% per year, the vanishing yields of the 1990s needed the bear market of 2000-2003 to set things right.

Only, of course, it didn't. Yields slumped and stayed slumped as the Tech Crash drowned financial, industrial and retail stocks in its wake. S&P dividends fell lower right alongside stock prices. Even at the low of Oct. 2002, the dividend yield offered by America's 500 biggest corporations remained well below 2.0%.

Fast forward to mid-2008, and the gap between what you might now earn in dividends and what investors have traditionally expected remains very nearly as wide as it was throughout the 1990s. The upshot? Unless things really are different this time, and investors are willing to buy stocks that pay less than half the rate of inflation – and less even than US Treasury bonds! – then the current bear market might be expected to roll on for a while longer yet.

Why? Because to push this decade's dividend-yield back towards the long-run historic average, the annual pay-out from S&P stocks would need to reach a staggering and never before witnessed 19% – and stay there – for the next 18 months.

Short of market-wide "earning surprise", you can guess what that would mean for stock prices, currently offering a little over 2.1% per year in dividend yield.

Either investors had better hope and pray earnings rise sharply...or inflation in their cost of living goes negative...before stocks look a good income-paying asset class once again.

If not, they're likely to continue swapping stocks for other investments until the return offered by equities gets somewhere near to its historic average – more than twice the current level today.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules