Now that the market has doubled since its Great Recession low, it is getting more popular to argue that this could be it for this bull market. That argument is a little hard to believe when put in the context of the chart below which shows the 10-year S&P 500 annual compound returns from 1926-2010. The data is displayed in a distribution with the lowest 10-year returns on the left hand side of the chart and the highest 10-year returns on the right. As shown below, the 10-year annualized return of the S&P 500 at the end of 2010 was a scanty +1.4%. This reading of +1.4% is the first to register in positive territory since 2008. However, it remains the twenty-fourth lowest reading over this 1926 to date time frame (out of 300 quarterly observations) and in the first decile of the distribution since 1926!
(Click to Enlarge)
Printed with permission from The Leuthold Group.
The returns for the 1990′s were at the far right tail of the distribution.
The return in the aughts is a simple artifact of the high starting valuation.
Better to look at (e.g.) the 20 year period, which overall can be described by the phrase “regression to the mean is inevitable”.