Absent a 12.14% December return, this will be first losing decade for the S&P 500

What’s in store for the next decade?

One interesting observation is that leaders in one decade usually don’t repeat in the following decade. This statement is clearer when viewed from the industry level. In the 1990s, five of the 10 top cumulative price returns came from IT. Yet in the following decade, not only did the entire sector sharply underperform the overall market, but all five IT industries that led the pack in the 1990s underperformed the market in the 2000s, falling from 43% for systems software to 87% for communications equipment. Conversely, nine of the bottom 10 in the 1990s went on to beat the S&P 500 in the 2000s. Not surprisingly, the one that didn’t was also an IT industry.

In addition, among the worst performers in the 1990s were industries in the energy and materials sectors — most notably gold and oil & gas exploration & production — which are now among the top performers this decade (Gold gained 112% in the 2000s and ranked 11th).

So what might this mean for the coming decade? When we finally emerge from this debt overhang — and the sooner we do this the better — the washout of prices and valuations may serve as a springboard for equity price advances for the remainder of the decade. If history is any guide (it is never gospel), the cyclical sectors will likely lead the recovery, while the defensive groups get pulled along for the ride.



Saverio Manzo