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The Curse Of The Third 10%-Plus Year

Jessica has written several times about the seeming market anomaly that the S&P 500 rarely posts three or more consecutive +10 percent years. 

Since 1928 (93 years), it’s happened only 5 times:

  • World War II (4 years): 1942 (+19 pct), 1943 (+25 pct), 1944 (+19 pct) and 1945 (+36 pct)
  • Korean War (4 years): 1949 (+18 pct), 1950 (+31 pct), 1951 (+24 pct) and 1952 (18 pct)
  • Start of Vietnam War (3 years): 1963 (+23 pct), 1964 (+16 pct), and 1965 (+12 pct)
  • Late 1990s Bull Market (5 years): 1995 (37 pct), 1996 (+23 pct), 1997 (+33 pct), 1998 (+28 pct) and 1999 (+21 pct)
  • Post-Financial/Greek Debt Crisis (3 years): 2012 (+16 pct), 2013 (+32 pct) and 2014 (14 pct)

That’s the whole list, across almost an entire century of US equity returns… The famous bull market of the 1980s did not see 3 consecutive +10 percent years. Nor did the 1970s, when the S&P 500 rose by 78 percent over that inflationary decade. Even the post-1932 snapback from the Great Depression bottom for US stocks failed to string together 3 years in a row of +10 percent returns in the 1930s.

We’re closing 2020 with a 15 percent price return, and 2019 was 31 percent, so why would one think that there’s enough left in the tank for another +10 percent year in 2021?

  • Do we really think investors haven’t figured out that corporate earnings will rebound sharply in 2021?
  • … Or that they don’t believe the Federal Reserve is serious about keeping interest rates low across the curve?
  • Those factors explain 2020’s return, especially the lift off the March 23rd bottom. But they do nothing useful to defend the view that 2021 will see the S&P 500 return another +10 percent.

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