If you’re having deja vu from all the dire predictions that this decade will be one of single-digit growth, you wouldn’t be alone. In the last 40 years, each bear market at the beginning of a new decade rebounded, the comebacks driven by innovation, contends an article in Chief Investment Officer. What the naysayers miss is that each market downturn created lowered valuations that resulted in “above-average returns,” the article quotes Doug Foreman of Kayne Anderson Rudnick.
Many financial experts are hung up on what former U.S. Treasury Secretary calls “secular stagnation”—a period of slow growth caused by a lack of innovation. And many of those voices are quite loud, pointing out the confluence of geopolitical tensions, the pandemic, high inflation and rising interest rates is unique to our time and will push forward of decade of decline. Among those voices are Michael Burry, seer of the housing collapse that preceded the 2008-09 financial crisis, and Ray Dalio, who predicted that “the economy will be weaker than expected, and that is without consideration given the worsening trends in internal and external conflicts” in a recent LinkedIn post cited in the article. But that view fails to take into account the rising impact of AI, biotech, big data, and many other cutting-edge advancements. And long-running bull markets tend to lead to a belief that the years of good returns can’t be repeated or outdone. But history has proven that wrong, again and again: the 90s tech boom overcame the late 80s’ slump, the housing boom revived fortunes lost by the dot-com bust, and the tech explosion in the 2010s restored the market after the 2008 crisis.
In short, markets will always be cyclical, “so it’s best to be dynamic in asset allocation” and be ready for the next big trend, Matt Lloyd of Advisors Asset Management advises. And Jeremy Siegel, perennial bull, has long said that equities will always be a winner, no matter what is going on with the economy. The equity risk premium and “the long-term real rate of return from investing in stocks is remarkably durable,” Siegel told Knowledge Wharton in a recent interview cited in the article, with only brief dips and jumps over the past 10 years. The market is fueled by innovation, says Michael Sansoterra of Silvant Capital Management, and many are too willing to throw in the towel after every big recession. But, he added, “I don’t worry about the long-term industriousness of creativity of the American people.”