Question

From 2010-2020 discuss the market performance in that 10 year period. What were some of the major drivers of performance during that decade?

Answer 1

It’s a phrase that comes standard on Wall Street, but which may be taking on ominous undertones in the current market: Past performance is no guarantee of future returns. It should come as no surprise that U.S. equity-market investors have been handsomely rewarded thus far this decade, a period of time that roughly corresponds with the recovery from the financial crisis (the bottom came in March 2009, roughly 10 months before the start of the 2010s). The S&P 500 SPX, +3.06% is up nearly 140% since the start of the decade, and more than 180% on a total-return basis. The Dow Jones Industrial Average DJIA, +2.68% is up more than 130% over the same period.

Those are obviously strong gains, but even the biggest bulls on Wall Street may not appreciate just how strong this period has been relative to other decades.

“The 2010s have so far been one of the highest-returning and lowest-risk decades for U.S. stocks in the last 100 years. According to Convoy’s data, stocks averaged a total annualized return of 13.2% thus far this decade, comfortably above the long-term average of 9.6%. While this was below four other decades — the best decade was the 1950s, when the average was 18.8%, followed by the 18.6% gain in the 1990s — equities fared better in terms of their excess return above interest rates. By the excess-return measure, the 2010s have seen an average annual return of 12.7%, significantly above the 5.8% long-term average (going back to the 1920s).

“The second perspective is important because stocks returning 10% is a great deal if inflation is low and your bank is paying you 1% interest rate, but a terrible deal if inflation is high and your bank is giving you 15% interest rate,” Wang wrote. If this average holds, the 2010s will go down as the third-best decade of the past century, behind only the 1950s, when the U.S. economy saw massive growth in the wake of the Second World War, when it was the globe’s only real economic powerhouse; and the 1990s, which benefitted from the growing dot-com era.

Underlining the remarkable streak seen on Wall Street since 2010 has been the fact that markets were unusually quiet in terms of volatility. While there were pullbacks and corrections over the period, there were fewer than normal. Last year was particularly quiet on this front: The market saw some of its quietest trading in decades, and the S&P 500 went a historic length of time without a pullback of either 3% or 5%. While volatility has returned in 2018, that hasn’t been enough to meaningfully shift the needle on this front. Average annualized volatility has come in at 11.9% thus far in the 2010s, on track for the lowest reading since the 1950s, and significantly above the long-term average of 18.2%. However, that average is skewed by the 1930s, during the Great Depression, a decade where annualized volatility came in at 36%. Remove that outlier, and the average drops to 14.6%. “Once we risk-adjust the returns, stocks in the 2010s have had the second-highest ratio of return/risk in the last 100 years,” Wang wrote.

Natural and Man-Made Disasters: As we know the impact of covid 19 Natural or man-mad disasters with economic consequences also affect stock markets. If an earthquake happens in a bustling city where there's lots of economic activity, markets will move down as investors fear a negative impact on economic growth. Similarly, if there's a disaster at a man-made facility of economic importance, such as an oil refinery blowing up, it can put downward pressure on stock prices

Market Psychology: At the end of the day, swings in the stock market are caused by human beings. There are boom periods in a rising market when everyone wants to buy. Alternatively, there are also periods of panic when almost every investor is scrambling to sell. currently we seen the same impact due to pandamic.

Politics: A belief by investors that control of the government by one party or the other will hurt or benefit them can move the market as whole. This is especially true in times of intense domestic turmoil. Significant developments abroad also can affect U.S. markets. An election involving one of our major trading partners that brings to power an avowedly hostile government can push markets lower. However, the converse is also true. The election of a friendly foreign government can move markets higher. These are scenarios we might see in trading partners with democracies. In non-democratic countries with which we trade, coups, general strikes and revolutions may be more likely. The positive or negative effect on the stock market would depend on the country and the circumstances, but uncertainty generally moves markets lower.

Economics: Macro-economic factors such as interest rates, inflation, unemployment and economic growth often move stock markets. Stock markets are always rooting for more economic growth, because it usually means more profits for companies, and more profits tend to grow the value of stocks. Declining interest rates often send markets higher, because they are seen as a harbinger of economic growth. High inflation has the opposite effect, because it signals that interest rates will be rising in the immediate or near future, thus slowing economic growth. Rising unemployment foreshadows lower economic growth, and falling unemployment tells stock investors that growth is on the way. When these data are reported, they can move stocks, but they may not if the numbers are more or less what investors expected. Nevertheless, if you're investing in stocks, it's important to keep an eye on these numbers. They can often predict whether the market as a whole will go up or down.

International Transactions: The flow of funds between countries effects the strength of a country's economy and its currency. The more money that is leaving a country, the weaker the country's economy and currency. Countries that predominantly export, whether physical goods or services, are continually bringing money into their countries. This money can then be reinvested and can stimulate the financial markets within those countries.

Supply and Demand: Supply and demand for products, services, currencies and other investments creates a push-pull dynamic in prices. Prices and rates change as supply or demand changes. If something is in demand and supply begins to shrink, prices will rise. If supply increases beyond current demand, prices will fall. If supply is relatively stable, prices can fluctuate higher and lower as demand increases or decreases.

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