2010–2019: THE DECADE IN REVIEW
Every January, I look back and report on The Year in Review and assess the year that was. What were the highlights? What were the “lowlights”? What did we learn? But this January did not just mark a new year. It marked the beginning of a new decade. (If you are a strict observer of the Gregorian calendar system, the next decade begins in 2021. But I digress.) So, for this report, we’re going to look back at what shaped the markets in the 2010s, and what lessons we should take with us into the ‘20s.
For the first few years, fear abounded as to whether the global economy would recover at all. Nation after nation dealt with spiraling debt that couldn’t be paid off. Remember how often Greece used to be in the news? Some analysts speculated about the possibility of a second recession. 2011 was an especially tenuous year for the stock market, especially when the United States’ credit rating was downgraded for the first time in history.
2012–14: THE FEDERAL RESERVE INTERVENES
During this time, however, the world’s largest central banks were working behind the scenes to keep the recovery going. In the United States, for example, the Federal Reserve embarked upon a massive bond- buying program to the tune of $85 billion per month. This accomplished two things. First, it flooded the money supply and kept interest rates historically low. Lower interest rates made borrowing less costly, which meant businesses and individuals could borrow and spend more, thereby pumping more money into the economy as a whole. This, of course, equaled growth. Slow growth, but growth nonetheless. The second thing the Fed’s bond-buying did was drive more investors into stocks. Low interest rates often lead to lower returns for fixed income investments, so investors went into the higher risk, higher reward stock market. All this had been going on for years, but the results were only then becoming apparent. So, it came almost as a surprise when the markets reached new highs even though the economy still seemed to be licking its wounds. In mid-2013, the Dow Jones Industrial Average hit 15,000 for the first time, rising to 16,000 by the end of the year, and then 17,000 the year after. 2015–16: WAITING FOR THE OTHER SHOE TO FALL But that didn’t mean the markets were immune to volatility. Despite the economic recovery, many experts spent the decade in near-constant fear of another bear market. Every wobble and every market correction was
2010–11: AFTERSHOCKS OF THE GREAT RECESSION
The best way to see how much can change in a decade is to remember how things were at the end of the last one. In 2010, we were coming off the worst decade for stocks since the 1930s. The Great Recession had devastated the retirement savings of millions of people. Many of the world’s most famous financial institutions had collapsed. And the national unemployment rate was near 10%. It was a scary and uncertain time. Many investors had fled the markets entirely by 2010, some for good. As a result, they missed a remarkable recovery that was just around the corner. Not only that, they also missed the longest bull market in history. In hindsight, it might seem obvious that there was nowhere to go but up. But just as the start of a recession is very hard to see coming, the ending can be equally hard to wait for. People can be forgiven for thinking the worst was still to come, because in 2010 and 2011, there were still a lot of ominous headlines to deal with. Remember any of these terms? SEQUESTRATION • US DEBT CEILING EUROPEAN DEBT CRISIS BAILOUTS • AUSTERITY • THE FISCAL CLIFF
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