On Tuesday, October 4, Aaron Judge hit his 62nd home run of the 2022 season, breaking Roger Maris’ American League record of 61 home runs, a mark that had stood since 1961.

It would have been the record for Major League Baseball if not for Barry Bonds, Mark McGwire, and Sammy Sosa. Those three players hit between 63 and 73 home runs SIX TIMES in a four-year span, between 1998 and 2001. No player hit more than 61 before or after those four seasons until Judge did this year. And baseball has been keeping records since the 1800s.

Most baseball historians place an asterisk next to each of those gawdy home run totals from 1998-2001 after learning many players were taking illegal performance enhancing drugs, or PEDs.

It became known as the “steroid era.”

After watching rates rise for the first time in what seems like years and listening to members of the Federal Reserve talk about the current fight against inflation, I could not help wondering how history will judge the period between the Global Financial Crisis and COVID-19. Will it have an asterisk as well?

Perhaps low interest rates and quantitative easing - hallmarks of the 2010s - were akin to PEDs for sluggers. Did stock market performance seem abnormal? Hindsight, as they say, is 20/20. So, let’s use it.

Here are a few different data points from each decade between 1950 and now, using the S&P 500 as a proxy for the U.S. stock market. Keep in mind, these are based on price returns. Total returns would have been better if dividends had been included.

Returns:

Compared to other decades, returns in the 2010s were strong but certainly not unheard of. The 1950s, ‘80s and ‘90s were all better for stock investors. How about volatility? Was it calmer than other decades?

Standard Deviation:

Generally speaking, yes, but degrees varied. Last decade was less volatile than the 2000s, but that decade included two of the nastiest bear markets in modern history, from 2000-2002 and 2007-2009. More on that in a second. Inflation in the 1970s and ‘80s accompanied higher volatility as well.

Finally, look at drawdowns. This represents the percentage lost from the market’s peak to the market’s low.

Maximum Peak-to-Trough Drawdown:

Now the 2010s and 1990s start to look a little unique, especially when compared to recent memory. Stock investors lost half their money on two separate occasions during the 2000s[1]. “Buy the dip” became the mantra for many traders and investors in the 2010s, believing periods of pain would be short-lived as central banks came in to support markets. And in many cases, they were correct.

Why do we care?

Aside from showing off at your next stock market trivia party[2], understanding how we got here may help plan for the road ahead.

Financial planning and investing involve using best guesses about an unpredictable future to give the best odds at success. Circumstances that led to stock prices rising through the 2010s will probably be different than the circumstances investors face through the 2020s. Extrapolating past results when forecasting retirement income, college needs, or some other important goal seems unwise. Many investors felt smart at the end of 2019, seeing account values near all-time highs. I suspect they felt less intelligent at the end of 2009, at the tail-end of a ‘lost decade’ in which stocks finished close to where they started.

As always, today’s starting point is non-negotiable. Prolonged periods of low returns can happen. Having a plan that accounts for a wide variety of future outcomes can help.

Interested? Email me at eric@divviwealth.com or set up time with the Divvi team to continue the conversation.

Opinions expressed herein are solely those of Divvi Wealth Management and our editorial staff. The information contained in this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. All information and ideas should be discussed in detail with your individual adviser prior to implementation.

Data source: Morningstar Direct, using daily returns.

[1] The maximum drawdowns in 2002 and 2009 were 48.6% and 56.3%, respectively.

[2] Would anyone else get excited for these!?