Chart of the week

Cycles

What does this chart show?

Since 1881, the S&P 500’s rolling 10-year returns have been cyclical in nature. Prolonged periods of market performance above the 10.5% long run average were followed by long periods of declining returns. At five points in the dataset - 1937, 1938, 1939, 2008, and 2009 - the trailing 10-year returns were negative.

Why does it matter?

It doesn’t take a great decipherer to tell that we appear to be in another period of above average market performance, and there’s no telling how long it may go especially as the age of AI takes hold. But one thing is for sure, every secular bull market makes the preceding trough period feel further and further away. The lost decade in the U.S. stock market in the 2000’s has now been replaced by a fervor for U.S. stocks and hatred of anything else at right about the time that diversification may be most prudent.

The Bottom Line

Zoom out and guard against recency bias.

Chart & Data Sources - The great Christopher Bloomstran of Semper Augustus