The last decade was tough, and the next one may not be much rosier. Where should you look for strength today?
At the past decade’s end, the
Both periods suffered aggregate corporate earnings declines, near -47 percent and -65 percent, resulting in yearly earnings declines of -6.1 percent and -9.9 percent, respectively. The more severe collapse in earnings during the 2000s as a whole resulted in an 8 percent S&P price-to-earnings ratio (P/E Chg) expansion compared with a 0.9 percent expansion during the 1930s. Figure 1 displays decade-by-decade components of returns.
Gold, Commodities And Bonds Ruled In The 2000s
Figure 2 charts the performance of the major asset classes that hedge inflation and deflation (default risk) best. During the last decade, the major diversifiers (the majors) provided the following annual compound total returns:
The majors were compared with the U.S. dollar performance, which declined 2.6 percent yearly. Other widely employed asset classes offered positive returns net of inflation, with the exception of foreign equities and direct real estate investment, which returned 1.9 percent yearly and -2.7 percent yearly, respectively. Direct real estate investment lost in nominal and in real terms. The best yearly compound returns were had by emerging market stocks at 7.3 percent, real estate stocks at 6.8 percent, domestic bonds (government/corporate) at 6.4 percent, Treasury inflation protected bonds (TIPS) at 5.6 percent, U.S. small company stocks at 3.5 percent and 3-month T-bills at 3.0 percent.
The inflation rate was 2.7 percent during the 2000s. The decade’s economic growth was 2.7 percent and 3.2 percent for real gross national product (RGNP) and real gross domestic product (RGDP) respectively. RGNP measures our nation’s economy net of domestic foreign investment, which correlates better with asset class performance. RGDP excludes foreign investment data. Consequently, I focus more on RGNP than RGDP when researching asset class returns.