Won’t 2020-2030 Stock Returns Look Like 2009-2019?

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Kookaburra
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Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Kookaburra »

The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
Last edited by Kookaburra on Sat Jul 04, 2020 2:11 pm, edited 1 time in total.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by 02nz »

No. One. Knows.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by pkcrafter »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
Won’t 2020-2030 Stock Returns Look Like 2009-2019?
If the answer is yes, what are you going to do? If the answer is no, what are you going to do?

Asking these kinds of questions is going to get you way off track and hurt your returns.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by whereskyle »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
I mean, yeah, except the stock market's P/E ratio is much higher today than it was in 2009. To see similar returns as the last bull market, that p/e would have to continue to rise to dizzying and historically unsustainable levels. Therefore, no, I don't think we're looking at a repeat. The economy and the fed may be in similar spots, but the market today is much more richly priced than it was in 2009. That said, you should embrace right now and never forget that nobody knows nothin'.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by minimalistmarc »

whereskyle wrote: Sat Jul 04, 2020 2:55 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
I mean, yeah, except the stock market's P/E ratio is much higher today than it was in 2009. To see similar returns as the last bull market, that p/e would have to continue to rise to dizzying and historically unsustainable levels. Therefore, no, I don't think we're looking at a repeat. The economy and the fed may be in similar spots, but the market today is much more richly priced than it was in 2009. That said, you should embrace right now and never forget that nobody knows nothin'.
You’re forgetting about the “e” bit of the “p/e”. Stock prices could go up even though p/e dropped, if earnings rise more than price.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by dukeblue219 »

minimalistmarc wrote: Sat Jul 04, 2020 3:08 pm
You’re forgetting about the “e” bit of the “p/e”. Stock prices could go up even though p/e dropped, if earnings rise more than price.
And yet we haven't even seen the full effect of COVID 19 on the "e" part yet...
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by whereskyle »

minimalistmarc wrote: Sat Jul 04, 2020 3:08 pm
whereskyle wrote: Sat Jul 04, 2020 2:55 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
I mean, yeah, except the stock market's P/E ratio is much higher today than it was in 2009. To see similar returns as the last bull market, that p/e would have to continue to rise to dizzying and historically unsustainable levels. Therefore, no, I don't think we're looking at a repeat. The economy and the fed may be in similar spots, but the market today is much more richly priced than it was in 2009. That said, you should embrace right now and never forget that nobody knows nothin'.
You’re forgetting about the “e” bit of the “p/e”. Stock prices could go up even though p/e dropped, if earnings rise more than price.
Certainly, you are correct. Nonetheless, this indicator is still less favorable than in 2009. Much easier to see spectacular returns when both earnings and the P/E ratio are growing. Will be difficult for earnings to do all that work, and by each degree the P/E ratio increases, the situation grows more precarious. In any event, no, OP, not all of the stars are aligned as they were in 2009.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Vanguard Fan 1367 »

I will go with the Bogle quote at the bottom of whereskyle's post: "Nobody knows nothing."
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by willthrill81 »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers.
Why would you think that a short-term employment trend would continue unchanged for a decade?

That's like saying "Stocks have gone up 20% over the last month, which points to stocks returning 20% every month for the next decade."

You state to assume that this is true, but it's such an absurd assumption that what follows is pointless conjecture.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by jebmke »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
We were down ~ 60% from the peak in 2009, yes? Perhaps if we drop to 60% of the peak in 2020 then the results on the upside will be similar.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Kookaburra »

willthrill81 wrote: Sat Jul 04, 2020 4:38 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers.
Why would you think that a short-term employment trend would continue unchanged for a decade?

That's like saying "Stocks have gone up 20% over the last month, which points to stocks returning 20% every month for the next decade."

You state to assume that this is true, but it's such an absurd assumption that what follows is pointless conjecture.
I think you may have misinterpreted the employment prediction that I read (it wasn’t my assumption, so don’t shoot me). It was basically stating that it will take 10 years to get back to ~3.5%. So my question pertained more about whether the “Fed jet fuel” for the next ~10 years will achieve a similar outcome as the bull of 2009-2019.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by willthrill81 »

Kookaburra wrote: Sat Jul 04, 2020 5:02 pm
willthrill81 wrote: Sat Jul 04, 2020 4:38 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers.
Why would you think that a short-term employment trend would continue unchanged for a decade?

That's like saying "Stocks have gone up 20% over the last month, which points to stocks returning 20% every month for the next decade."

You state to assume that this is true, but it's such an absurd assumption that what follows is pointless conjecture.
I think you may have misinterpreted the employment prediction that I read (it wasn’t my assumption, so don’t shoot me). It was basically stating that it will take 10 years to get back to ~3.5%. So my question pertained more about whether the “Fed jet fuel” for the next ~10 years will achieve a similar outcome as the bull of 2009-2019.
If it wasn't your prediction, then I would kindly suggest that you provide the links to it in order to make that clear. In the absence of references to information sources, readers are implicitly told by the writer that what is written is the writer's own material.

Nobody can predict how long it will take to get back to 3.5% unemployment. It might happen in a couple of years. It might never happen again.

“The only function of economic forecasting is to make astrology look respectable.”
-John Kenneth Galbraith (an economist)
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by HomerJ »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pmThis time around, the unemployment rate is even higher
Heh. Things are worse, so I bet we get even MORE money over the next 10 years!


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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by White Coat Investor »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pm I’m try to sort out this dichotomy. Thoughts?
Why? Why not just invest in a reasonable way, accept what the market gives you, and adjust your lifestyle and savings rate to accommodate those returns? Seems a lot easier than trying to predict the future.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by White Coat Investor »

jebmke wrote: Sat Jul 04, 2020 4:49 pm We were down ~ 60% from the peak in 2009, yes? Perhaps if we drop to 60% of the peak in 2020 then the results on the upside will be similar.
In what asset class? The overall US market certainly wasn't down 60%, but REITs were down 78% at one point.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by jebmke »

closer to 55% from 2007 peak to bottom in 2009. I should have been clearer. I pay no attention to calendars. Focusing on calendar year is a mental framing error.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by CyclingDuo »

whereskyle wrote: Sat Jul 04, 2020 2:55 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
I mean, yeah, except the stock market's P/E ratio is much higher today than it was in 2009. To see similar returns as the last bull market, that p/e would have to continue to rise to dizzying and historically unsustainable levels. Therefore, no, I don't think we're looking at a repeat. The economy and the fed may be in similar spots, but the market today is much more richly priced than it was in 2009. That said, you should embrace right now and never forget that nobody knows nothin'.
You may want to take a little time to watch this regarding trailing P/E ratios, as well as CAPE when it comes to 2009 and today (as well as a few other important market bottoms).

https://www.youtube.com/watch?v=CyYgIum7kA0&t=5s
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by rockstar »

The stock market valuation didn't drop like it did during the last recession. If I follow Bogle's logic, then there isn't a lot of speculation growth available in the market's PE. It's 27x times, which is pretty ridiculous. This is only going to get worse after Q2 earnings come out.

https://www.wsj.com/market-data/stocks/peyields

My expectation is that the next ten years look more like 2000-2009. I'm expecting the S&P PE to breach 30x after Q2, and that looks a whole lot like it did in 1999-2000. I hope I'm wrong.

Here's what it looked like back in 09-10. Ignore the CAPE metric and just look at the PE.

http://www.econ.yale.edu/~shiller/data.htm

In Bogle's book of common sense investing, he expects the market to follow the nominal GDP plus the dividend yield less the speculative multiple to bring the PE back down to 20x.

The other argument is that with interest rates near zero for at least the next two years, that there aren't a lot of alternatives to equities. So maybe the PE stays elevated and doesn't drop all the way down to 20x. I really don't know.

What I'm doing as a result is shifting to QQQ from VOO. It's an imperfect strategy, but I don't know where else to get higher potential returns right now without going into leveraged ETFs. I'm not a fan of international or SCV. I'm experimenting with 5% of my money in TQQQ, but I'm basically monthly trading it until the VXN gets back into the 20s. Then, I'll feel more confident holding it long term. I've also accelerated paying down my home. These ideas aren't really Boglehead ones, but I'm doing the best with what I know and have experienced over time.
Last edited by rockstar on Sat Jul 04, 2020 10:19 pm, edited 1 time in total.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by reln »

02nz wrote: Sat Jul 04, 2020 2:11 pm No. One. Knows.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Kookaburra »

White Coat Investor wrote: Sat Jul 04, 2020 5:11 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm I’m try to sort out this dichotomy. Thoughts?
Why? Why not just invest in a reasonable way, accept what the market gives you, and adjust your lifestyle and savings rate to accommodate those returns? Seems a lot easier than trying to predict the future.
What makes you think that I’m not doing this? (I am). After all, I posted this under “Investing Theory”, not under “Personal Investments.” I was trying to ask a thoughtful question in the spirit of learning about things like “don’t fight the Fed”, PEs, etc.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Kookaburra »

willthrill81 wrote: Sat Jul 04, 2020 5:07 pm
Kookaburra wrote: Sat Jul 04, 2020 5:02 pm
willthrill81 wrote: Sat Jul 04, 2020 4:38 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers.
Why would you think that a short-term employment trend would continue unchanged for a decade?

That's like saying "Stocks have gone up 20% over the last month, which points to stocks returning 20% every month for the next decade."

You state to assume that this is true, but it's such an absurd assumption that what follows is pointless conjecture.
I think you may have misinterpreted the employment prediction that I read (it wasn’t my assumption, so don’t shoot me). It was basically stating that it will take 10 years to get back to ~3.5%. So my question pertained more about whether the “Fed jet fuel” for the next ~10 years will achieve a similar outcome as the bull of 2009-2019.
If it wasn't your prediction, then I would kindly suggest that you provide the links to it in order to make that clear. In the absence of references to information sources, readers are implicitly told by the writer that what is written is the writer's own material.

Nobody can predict how long it will take to get back to 3.5% unemployment. It might happen in a couple of years. It might never happen again.

“The only function of economic forecasting is to make astrology look respectable.”
-John Kenneth Galbraith (an economist)
I tried to find the source but couldn’t locate it. But regardless, I was hoping it would still be possible to satisfy my inquisitive mind by posting a question on the assumption of that forecast being true. But clearly that was a false hope.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Clever_Username »

I don't know. I won't complain if we get returns like that, but my crystal ball hasn't been replying to me.
willthrill81 wrote: Sat Jul 04, 2020 4:38 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers.
Why would you think that a short-term employment trend would continue unchanged for a decade?

That's like saying "Stocks have gone up 20% over the last month, which points to stocks returning 20% every month for the next decade."
Exactly; alternately, we have this extrapolation: https://xkcd.com/605/
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by whereskyle »

CyclingDuo wrote: Sat Jul 04, 2020 5:33 pm
whereskyle wrote: Sat Jul 04, 2020 2:55 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
I mean, yeah, except the stock market's P/E ratio is much higher today than it was in 2009. To see similar returns as the last bull market, that p/e would have to continue to rise to dizzying and historically unsustainable levels. Therefore, no, I don't think we're looking at a repeat. The economy and the fed may be in similar spots, but the market today is much more richly priced than it was in 2009. That said, you should embrace right now and never forget that nobody knows nothin'.
You may want to take a little time to watch this regarding trailing P/E ratios, as well as CAPE when it comes to 2009 and today (as well as a few other important market bottoms).

https://www.youtube.com/watch?v=CyYgIum7kA0&t=5s
I do not think that currently high p/e means that the US market cannot continue to rise. I am just pointing out a difference between where we are now and where we were in 2009. At the bottom in 2009, the p/e was lower. That is all. Jack famously used starting p/e as a way to anticipate future returns. The lower the p/e, the higher the future returns we could reasonably anticipate. Nothing guaranteed of course. Just saying this is not the same situation, as OP oddly suggests. What happens next? Nobody knows.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by JonnyB »

Kookaburra wrote: Sat Jul 04, 2020 5:02 pm
willthrill81 wrote: Sat Jul 04, 2020 4:38 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers.
Why would you think that a short-term employment trend would continue unchanged for a decade?

That's like saying "Stocks have gone up 20% over the last month, which points to stocks returning 20% every month for the next decade."

You state to assume that this is true, but it's such an absurd assumption that what follows is pointless conjecture.
I think you may have misinterpreted the employment prediction that I read (it wasn’t my assumption, so don’t shoot me). It was basically stating that it will take 10 years to get back to ~3.5%. So my question pertained more about whether the “Fed jet fuel” for the next ~10 years will achieve a similar outcome as the bull of 2009-2019.
This is likely your source, the Congressional Budget Office "An Update to the Economic Outlook: 2020 to 2030".
https://www.cbo.gov/system/files/2020-0 ... utlook.pdf

They are projecting employment below pre-pandemic levels through 2030 and GDP below pre-pandemic trend through 2030.

As for its affect on investors, if like 2009 to 2019, because of the weak labor market, there will be shift from wages to profits. Good news if you are a retired investor. Bad news if you are a wage earner.

This shift from wages to profits was a large part of the run up in the stock market in the last decade. It was only in the last two years that employment finally caught up to where it was finally putting pressure to shift from profits back to labor. That short trend in favor or wage earners has completely reversed because of the pandemic. Wages will be suppressed again until employment recovers, as long as a decade according to the CBO.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by tibbitts »

I can't imagine why anyone would think the past ten years would be any kind of indicator for the next ten years.
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by pkcrafter »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pm
I tried to find the source but couldn’t locate it. But regardless, I was hoping it would still be possible to satisfy my inquisitive mind by posting a question on the assumption of that forecast being true. But clearly that was a false hope.
I am sorry you could not get a clear answer, but the question is unanswerable.
The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

No one knows if your speculation is correct. I would make no bet on feelings or guesswork. If you try to do this all the time, you will reduce your returns. I think that's all we were trying to say.

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?

Do you have a link to the article saying the above? Vanguard may have said lower returns over the next 10 years based on very good past performance--it may have had nothing to do with the virus.

I found this: Vanguard Sees 10-Year Projected Equity Returns Improving Sharply (3/25)


And this--

Why Market Returns May Be Lower and Global Diversification More Important in the Future, 6/23/20, Charles Schwab.

In a recent update to its Economic and Market outlook released at the end of 2019, Vanguard indicated that lower valuations due to the COVID-19 pandemic had prompted it to lift its equity-return forecasts. Whereas the firm was forecasting 10-year returns in the 3.5%-5.5% range as of year-end 2019, the latest forecast is for 4.8%-7.8% U.S. equity returns and even better returns (8.3%-11.3%) from non-U.S. equities. (Vanguard expresses its return expectations in a range.)


I hope you see the point here. Basically, you can find support for almost any speculative baloney you want. It's worthless, a waste of time, an will hurt your long term returns.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
Seasonal
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Seasonal »

tibbitts wrote: Sat Jul 04, 2020 6:53 pm I can't imagine why anyone would think the past ten years would be any kind of indicator for the next ten years.
Recency bias.

Anchoring.
pcsrini
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by pcsrini »

Take this with a grain of salt.

Schwab had an event last week on the what to expect in the 2H 2020 for the market. There was a chart in the presentation comparing the 2009 and 2020 market, and the similarity YTD in these two years. The common thread in 2009 and 2020 is the Fed stepping in to provide liquidity after a downturn. The valuations and sector composition of the index in the two years are very different. I think it's just a random coincidence.

https://markets.businessinsider.com/new ... 1029319183
NoRegret
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by NoRegret »

Will the “nobody knows nothin’” crowd care to share their investment horizon and positioning?

If your are truly unsure about which version of economic future will pan out, how is your portfolio structured to take advantage of different economic regimes? I believe what one actually does with one’s money expresses one’s view on the economic future, whether consciously or not. The exception being those poorly financially educated, present company excluded of course.

Equities do best in a disinflationary growth regime. High quality bonds do well also. Maintaining a high equity percentage, especially as one gets close to retirement is a bet that the recent past will continue. This is not as agnostic as some makes it out to be.

Nobody knows the future for certain, but it doesn’t stop us from thinking probabilistically, from handicapping various potential outcomes, understanding signs of each and preparing accordingly.

NR
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
3funder
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by 3funder »

Impossible to know. Stick with your plan.
Global stocks, US bonds, and time.
MathWizard
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by MathWizard »

In Bogle's book on mutual funds, I recall a table with actual 10 year returns, the estimate of what it would have been using the Gordon equation, and the change in P/E over that decade. The table showed that the difference between the estimate and actual return was very close to the change in P/E.

He referred to the difference as the speculative return.

The Gordon equation estimates more on fundamentals of the underlying companies, this does not include the changes in sentiment on the market as a whole.
Topic Author
Kookaburra
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Kookaburra »

JonnyB wrote: Sat Jul 04, 2020 6:48 pm
Kookaburra wrote: Sat Jul 04, 2020 5:02 pm
willthrill81 wrote: Sat Jul 04, 2020 4:38 pm
Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers.
Why would you think that a short-term employment trend would continue unchanged for a decade?

That's like saying "Stocks have gone up 20% over the last month, which points to stocks returning 20% every month for the next decade."

You state to assume that this is true, but it's such an absurd assumption that what follows is pointless conjecture.
I think you may have misinterpreted the employment prediction that I read (it wasn’t my assumption, so don’t shoot me). It was basically stating that it will take 10 years to get back to ~3.5%. So my question pertained more about whether the “Fed jet fuel” for the next ~10 years will achieve a similar outcome as the bull of 2009-2019.
This is likely your source, the Congressional Budget Office "An Update to the Economic Outlook: 2020 to 2030".
https://www.cbo.gov/system/files/2020-0 ... utlook.pdf

They are projecting employment below pre-pandemic levels through 2030 and GDP below pre-pandemic trend through 2030.

As for its affect on investors, if like 2009 to 2019, because of the weak labor market, there will be shift from wages to profits. Good news if you are a retired investor. Bad news if you are a wage earner.

This shift from wages to profits was a large part of the run up in the stock market in the last decade. It was only in the last two years that employment finally caught up to where it was finally putting pressure to shift from profits back to labor. That short trend in favor or wage earners has completely reversed because of the pandemic. Wages will be suppressed again until employment recovers, as long as a decade according to the CBO.
Yes, that’s the source. Thank you!
pkcrafter
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by pkcrafter »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
Gambler's Fallacy

Also known as the Monte Carlo Fallacy, the Gambler's Fallacy occurs when an individual erroneously believes that a certain random event is less likely or more likely, given a previous event or a series of events. This line of thinking is incorrect, since past events do not change the probability that certain events will occur in the future.
:D :beer
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
JonnyB
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by JonnyB »

pkcrafter wrote: Sun Jul 05, 2020 1:11 pm
Gambler's Fallacy

Also known as the Monte Carlo Fallacy, the Gambler's Fallacy occurs when an individual erroneously believes that a certain random event is less likely or more likely, given a previous event or a series of events. This line of thinking is incorrect, since past events do not change the probability that certain events will occur in the future.

:D :beer
The gambler's fallacy applies to the probability of random events like the roll of dice or the shuffle of a deck of cards. I do not believe that the economy and the stock market are random events. There are causes and effects. Many of these causes and effects are observable and predictable.

True, some events may not be predictable but that is no excuse to throw up your hands and say that nothing is predictable.
JBTX
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by JBTX »

Kookaburra wrote: Sat Jul 04, 2020 2:10 pm The latest unemployment projections point to it taking ~10 years to get back to pre-Covid numbers. For the sake of this post, let’s assume that’s true.

Last time around, starting at the bottom in 2009, the Fed showed it was willing to take significant measures for years to support the economy, and even did an abrupt about-face on rate increases when the stock market got cranky in late 2018.

This time around, the unemployment rate is even higher, unemployment projections are for a 10-year recovery, and the Fed has already shown and expressed its willingness to take even more extreme interventions for an extended period of time.

With all that being said, aren’t the dynamics and forces in place for the next decade of the stock market to look like the bull from 2009-2019?

On one hand, don’t fight the Fed, ala 2009-2019. On the other, well-respected institutions like Vanguard are predicting meager 10-year market returns. I’m try to sort out this dichotomy. Thoughts?
Nobody knows. But potential differences:

- in 2008 stocks went down over 50%. This time they went down about 35% and immediately bounced back up to within 10% of their prior levels. But this isn't over and ultimately we don't know what will happen when all is said and done.

- 2008 was a downturn due to a financial crisis, a key part of that being excess consumer/household financial leverage. That takes a long time to unwind as consumers deleverage. What we are in now is something different. A forced recession / depression. Excess leverage could be a result, but not the cause. It is impossible to tell how long it will take employment to rebound.

- unemployment did go down a lot, but labor force participation did not increase nearly as much. Part of that is boomer demographics, but part is people who just never went back to work or looked for work. How will that play out this time? No one knows.

- this time around the fed and fed govt have been much more aggressive in providing liquidity, so we may have seen a lot of the 2008 rebound that took years already happened this time in a matter of months. Remember the huge economic and political debates around bail outs and stimulus and qe back then? What we are doing now makes that look like child's play. How does that all play out? No idea, but it is reasonable to assume the path forward won't be the same.
Northern Flicker
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Re: Won’t 2020-2030 Stock Returns Look Like 2009-2019?

Post by Northern Flicker »

pcsrini wrote: Sat Jul 04, 2020 9:12 pm Take this with a grain of salt.

Schwab had an event last week on the what to expect in the 2H 2020 for the market. There was a chart in the presentation comparing the 2009 and 2020 market, and the similarity YTD in these two years. The common thread in 2009 and 2020 is the Fed stepping in to provide liquidity after a downturn. The valuations and sector composition of the index in the two years are very different. I think it's just a random coincidence.

https://markets.businessinsider.com/new ... 1029319183
I don't think there ever has been two downturns and recoveries in a row that followed the same trajectory, maybe not even two ever. Of course, this could well be the first time. But I don't think that historical precedent will be the driver of it, should it come to pass.
Risk is not a guarantor of return.
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