2010s in Review: Investing Lessons & Market Performance Over The Past Decade


The past decade has been an extraordinary
time for financial markets. Let’s look back on five things that defined
investing during the 2010s and some lessons we learned along the way. # 1: The Longest Bull Market in History The 2010s was a phenomenal decade for the
stock market. The S&P 500 gained roughly 180%, nearly tripling
in value. According to Bloomberg, U.S. Corporate earnings grew more than 150%. U.S. Companies executed a record number of stock
buybacks, and pro-growth fiscal policy helped keep fears at bay. But perhaps nothing supported the markets
more than the Federal Reserve. The Fed kept interest rates near or below
zero in the wake of the financial crisis and began Quantitative Easing the program
of buying mortgage-backed securities and U.S. Treasuries. QE incentivized growth but also caused bond
prices to rise, thus lowering yields. Consequently, investors poured money into
stocks. While the Fed’s actions supported stock
prices in the short term, it may be years before the long-term effects of low interest
rates and QE are realized. And while many tried to pick the top and short
the rally, those who bought and held were generally rewarded. Bottom line, the lesson for investors this
decade was don’t fight the Fed. #2: The Rise of FAANG Stocks During the decade, markets were led by the
FAANGs Facebook, Apple, Amazon, Netflix, and Alphabet,
the parent company of Google. In 2012, Facebook went public, in what was
the largest tech IPO in history at the time. Meanwhile, Apple continued to evolve, Amazon
disrupted everything, Netflix changed television forever, and Alphabet grew into a tech behemoth. Collectively, these stocks gained, on average,
1600% since the start of the decade. As FAANGs grew in value, so did their influence
on the markets accounting for 12% of the weighting in the S&P by the end of 2019. In addition, FAANGs were added to many mutual
funds and ETFs, meaning even if you don’t directly own FAANG stocks, there’s a good
chance you do via a mutual fund or ETF. Now as FAANGs face headwinds ranging from
regulatory and privacy concerns to competition and trade wars,
investors should review their holdings to ensure their allocation matches their risk
appetite for these stocks. #3: Bubbles A financial bubble is a significant increase
in an asset’s price without an increase in its true value. Throughout the last decade, sharp moves in
prices for some assets showed signs of this kind of speculation. Beginning in 2010, gold’s price doubled
and silver’s tripled on fears of hyperinflation. But as the dollar strengthened and the U.S.
economy recovered, investors dumped metals and flocked to equities. Perhaps no bubble was bigger than bitcoin. In 2017, bitcoin’s price skyrocketed. But the move was unsustainable, and the price
crashed more than 80%. Other assets have gone through moments of
steep price increases, including pot stocks, corporate bonds, and tech unicorns that
struggled after going public. Investors should tread carefully with these
groups, because while history doesn’t necessarily repeat, it tends to rhyme. #4: Unexpected Events Few decades in stock market history were as
smooth as the last one, but that doesn’t mean there wasn’t unexpected turbulence
along the way. Political surprises, natural disasters, and
a crash in oil prices took markets for a ride, but perhaps nothing caught investors more
off-guard than the flash crash. On May 6, 2010, markets dropped suddenly,
and precipitously for no apparent reason. Lasting only 36 minutes, prices immediately
recovered. Initial reports blamed a fat finger trade
error, but after investigations, the crash was attributed to a futures trader
in London who pled guilty for attempting to “spoof the market” by quickly buying and selling
hundreds of e-mini S&P 500 futures contracts. While sudden crashes are almost impossible
to predict, investors can prepare for them by managing risk in their account and understanding
ways to protect their portfolio through hedging and proper order management. Investors with a plan can attempt to weather
these brief storms while keeping their eyes open for opportunities as a result of them. #5: The Return of Volatility Throughout the decade, the Fed provided stability
to the markets. But as the Fed started raising interest rates
and unwinding QE, volatility returned. In February 2018, the S&P 500 dropped 10%
on fears the Fed would raise interest rates quicker than expected. Eight months later, the 10-year yield spiked,
and the S&P 500 dropped nearly 20%. In 2019, the trade war kept markets on edge,
and economic growth seemed to be slowing. In August, the yield curve inverted for the
first time since 2007. This ominous signal has occurred one to two
years prior to each of the past nine U.S. recessions. Although unemployment remained low and the
stock market hit new highs through the end of 2019, some still fear a recession may be
looming. So What’s Next? As the next decade approaches, investors are
facing a number of unknowns including the 2020 Presidential election outcome, trade
negotiations, and the potential end to low interest rates and QE. Major shifts in population demographics will
likely affect sectors like Health Care, new technologies like 5G could revolutionize the
world, and issues like climate change, student loan debt, and growing income inequality may
pose long-term challenges to the economy. Ultimately, investors may need to plan for
lower returns than they received in the previous decade, and in the face of uncertainty, investors
should think carefully about how much money to devote to short-term opportunities, while
setting aside sufficient capital to invest for the next 10 years and beyond. Thanks everyone for watching. We post new educational content weekly so
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