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Lost decade for the stock market?
Winds of change.
The sun will always come out in Arizona.
It’s been a long time—the stock market could be at the beginning of a lost decade. It’s impossible to overstate just how good the stock market returns have been for investors over the last 40 years—and for even longer.
Japan’s “lost decade” was a period that lasted from about 1991 to 2001 that saw a significant slowdown in Japan’s previously bustling economy. The economic slowdown was caused in part by the Bank of Japan (BOJ) hiking interest rates to cool down the real estate market.
The Fed’s real position is by raising interest rates. The Fed aims to slow down the economy by making borrowing more expensive. In turn, consumers, investors, and businesses pause on making investments and purchases with credit, which leads to reduced economic demand, theoretically reeling in prices and balancing the scales of supply and demand. Many economists predict that the Federal Reserve will continue to raise interest rates through 2022 and possibly through 2023, and it could be at a much faster pace than originally expected.
Our Fed chairman Jerome Powell said in a quote, “We understand how painful it is, particularly for people who are living paycheck to paycheck and spend most of that paycheck on necessities, such as food and gas. And heating their homes. And clothing and things like that,” he said at the press conference following the Fed meeting in July. “We do understand that those people suffer the most.”
Retires and savers may see a sunny day. As the Fed continues to raise rates, certificates of deposit (CDs) eventually will catch up and normalize, which can reward savers by receiving higher interest rates on their money.
Elon Musk and Cathie Wood call out deflation risks—what investments might be safe if they are right? “If history is any guide, not many will make it past the next recession.” Elon Musk said, “Finally, you could invest in assets that are inherently limited. When things are scarce, they become even more valuable.”
Economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, sees a “long and ugly” recession in the U.S. and globally occurring at the end of 2022. His advice for investors: “You have to be light on equities and have more cash and gold.”
We will end with this quote by Will Rogers: “I’m not so much interested in the return ON my money as I am in the return OF my money.”