How Long Can The Market Stay Like This? Maybe Years Or Decades (SP500)

2023 trend concept. Wooden cube flipping hand changes year 2022 to 2023. Beautiful white background, copy space.  Used for new year banner trend concept to monitor new business opportunities.

Parradee Kietsirikul

By Rob Isbitts

I thought about telling this “story” through technical charts: support and resistance levels, trading ranges, technical indicators that are historically very overvalued, etc. But there is plenty of time for that in future articles. Instead, here is a different way of communicating the same conclusion:

Future stock market returns may disappoint many investors for years to come

This is not a prediction. However, it is a high probability, based on my decades of studying both markets and market participants (I was an investment advisor for 27 years, and I wrote in the public sphere for more than 20 years). You see, trees do not grow in the sky. And stock market returns are not typically moderate over time … they crash. This sequence may take a few years. But the current group of market participants may not have a sense of history, other than the flash-crash in 2020 and the bear market one year in 2022. As we invest, “old-timers” could say … but wait, there’s more. Here’s more for you. I hope it helps bring perspective that helps in understanding where we are in history, and what may come next. Not just in 2023, but for many years to come, even the next decade.

A conducted a research study that sought to answer the following questions regarding the S&P 500 index:

1. Is a year down to 2022 such a big deal?

2. What does stock market history tell us about a down year following a strong multi-year period?

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3. Is market history really a good guide?


I went back to 1975, to get enough of a sample size return each year. I converted these annual data into “rolling” periods of 5, 10 and 15 years. This is a long-term study, though as you will see, it has some serious immediate implications for some investors.

I used cost of return, not total return. That is, I exclude dividends. I wanted to focus on price changes, since dividends on stocks are historically low and have been that way for a long time. Dividends can really be a bigger factor in returns going forward, but I didn’t want to put that bias into this review. I will be writing a lot about dividends in the coming months. I am, after all, the founder of Modern Income Investor.

Punch line

historical SPX

The Modern Income Investor (Rob Isbitts). Source for all data: YCharts

The chart above is for investors who just want the “punch lines” here. The information below gets more and more granular. So, choose how far you want it. I will repeat the 3 questions above and give my answers.

1. Is a year down to 2022 such a big deal?

Yes. Because this year was driven by a true sea change. Inflation, higher interest rates, and the Fed keep everyone on their toes (or, put another way, confuse the heck out of us all), through an ever-changing discourse. And, as my study shows, investing in the stock market tends to have more extremes, and far less in between. In the table above, notice the following boxes below. These summarize the nearly 50 years of annual return data that I highlight here but are shown in detail in a table below this article.

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Almost 1/3 of the time, the S&P 500 produced a price return of less than 15%. This is a cumulative return figure, not annualized. So a return of less than 3% a year for 5 years, excluding dividends. This is lower than the current inflation rate by a thousand. And it’s likely to frustrate the heck out of today’s more immediate-free mass investors. This is what frustrates many of us market veterans now: that the market has not emptied itself out, so that a true, new bull market in action can begin. Instead, we have this endless dance, with trash stocks erupting on any sign of life it interprets in the Fed. This obsession is not healthy in the long run. As I see it, a down year is not a big deal for many investors. Give them a second, and it will begin to infect the psyche.

And that’s what this data tells me. Because once they assume forever the good times begin to fade away, that boiling frog analogy begins to join market psychology. That is, the market sentiment goes from “I’m OK with a drop in my stock portfolio, because it always comes back strong.” This table shows that it is false, historically speaking. Because not only do we have data that shows that 1/3 of the time you earn a meager return over 5 years for taking all the risk in this market. When you look out 10 and 15 years, you see that mediocre returns can be contagious. I chose a 10-year price change of 40%, and a 15-year price change of 60% as the dividing line between “I’m OK with that” and “why do I bother investing in the stock market again.”

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As you can see, about 25-30% of the time, you can look back at your S&P 500 Index fund and what you earned, excluding dividends? Less than 4% a year if you use a simple average, and more like 3% or so if you use a compound return approach. There was a time when investors didn’t just say they were “long-term investors,” they meant it. We have yet to see if the modern investor is that patient. Call me skeptical. That’s why I devoted the rest of my career to thinking outside that box. Because someone has to.

2. What does stock market history tell us about a down year following a strong multi-year period?

That these weaker time frames of 5,10 and 15 years tend to come in bunches. And, that tends to start with one down year that follows a historically bullish period for the S&P 500. You know, like we have now. Here is the 5-year price return of the S&P 500 that will go a long way. Notice that when this 5-year figure has crossed over 100% and then begins to fade down, this is usually the beginning of a trend.


S&P 500 5 Year Rolling (YCharts and Seek Alpha)

Now take a look back at the chart above. The area marked yellow tells us that, except for a miracle in the coming weeks of December, that the 5-year rolling return will crash from 113% to less than half of that. Historically, this is how long-term trend changes begin.

I will also add this: it is rare that the 5, 10 and 15 year returns all fall in the same year. When it does, it usually means we’re in the middle of a bigger deal than a down year that simply revives when the next year starts. See the “busy” history chart at the bottom of this article for details. Or, if you prefer, look at the 10-year and 15-year rolling price charts for the S&P 500 here.


S&P 500 10-year rolling (YCharts and Seek Alpha)


S&P 500 15-year rolling (YCharts and Seek Alpha)

3. Is market history really a good guide?

We will find out. Years ago, all that Fed talk and 24/7 market coverage didn’t matter because most people weren’t investors. And we didn’t have 24/7 coverage. You looked at the Wall Street Journal or your local newspaper to find out what happened yesterday.

We didn’t have the army of self-directed traders and investors we have now. While the acceptance of investing in the mainstream is great to see, it also calls into question what still works.

Then instant communication came on the scene, and it gave the investment business the biggest “hold my beer” moment ever. Want up-to-the-minute updates? Now you have everything you can handle. And frankly, more than most can handle, based on how bad many investors did this year, the first time in their investing lives that the wind was not at their back.

Next year, we should get a lot more. 2022 will either be an anomaly in a continued secular bull market, or it will conform more to what has happened in the past. I think 2023 will be another down year for the stock market. I will have much more to say about this as we transition from 2022 to 2023. But for now, my bottom line is that despite all the modern adjustments in the way markets, investments and communications work, there is still a the human element. emotions and thought behavior patterns that never go away. This is the case, no matter how much some big company tries to change the way our brain works.

Conclusion (for now)

This stock market is in trouble. A down year is likely not enough to purge the decade of easy money and speculation in the investment market it has forged. We’ve gone into the buy-and-hold era of 2022, where you can trade S&P 500 options contracts that expire on any trading day of the year. This is progress… of some sort, anyway. But as I see it, it is all part of the risk-relaxation of the past investing era to teach us, but which is largely in denial as a calendar year decline in the stock market ends.

What can change this course? If the market has moved to a permanent state of positive vibes. I know the past very well. I don’t know if my view of the present is accurate, yet. I think we will all find out soon where this is going. That is, if history is the best guide, a good guide or it has been rendered irrelevant.

Finally, here’s a more detailed chart to back up my figure and opinion above. enjoy

The story of SPX part 2

The Modern Income Investor (Rob Isbitts). Source for all data: YCharts


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