July 3, 2008, 2:33 pm
Lost Decade
Posted by Mark Gongloff
If you’re at the beach house this weekend and Uncle Ned tries to tell you stocks are a good long-term investment, counter with this, then have another strong margarita: Adjusted for inflation and dividends, the return on the S&P 500 was negative for the decade that ended on June 30.
If my calculations are correct, when this baby hits 80 miles per hour … your portfolio will still look like it was run over by a DeLorean.
During this lost decade — which colleague E. S. Browning wrote about back in March — commodities, bonds and even cash were better investments than stocks, Merrill Lynch chief investment strategist Richard Bernstein pointed out in a note on Friday.
It was the first ten-year stretch since the early 1980s -– not coincidentally, the tail end of a prolonged bear market – in which stocks generated a negative real long-term return, Mr. Bernstein noted.
Pesky Uncle Ned might grumble that Mr. Bernstein is a noted bear. He’s not alone, however. The somewhat more-bullish Tobias Levkovitch, chief U.S. strategist at Citigroup, pointed out recently that the S&P 500 has returned just 1.66% from 2000-2007. The aughts are well on their way to being the worst decade for stocks since 1930-40, back when things were really messy.
Mr. Levkovitch notes that all of the returns so far this decade have come from dividends; price return is slightly negative.
Neither strategist is ready to say the lousy returns are behind us yet. Soaring energy prices and the excruciating unwind of the credit bubble still threaten the economy and the long-lasting earnings bonanza that lifted stocks in the 1980s and 1990s.
“Although the longer-term trends for equities remain mildly positive, it seems that the capitulation for the cycle has yet to occur,” Mr. Bernstein wrote.
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