Story #3 – Stock Market Pain

In the last few years there were a lot of parallels drawn between the recent financial crisis and the Great Depression – collapsing banks, tumbling stock market, rising unemployment, etc.  But actually, for the U.S. stock market, the 2000’s were actually worse than the 1930’s!

Stock Market Returns by Decade

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In fact, this most recent decade was the worst for U.S. stocks since at least the Civil Warⁱⁱ. However, this certainly does not mean that this last decade was worse for the U.S. economy than the 1930’s. The technology bubble hurt the stock market far more than the broad economy as the resulting recession was driven by corporations while consumers were relatively unharmed.

Furthermore the broad economy did not suffer nearly the pain experienced in the Great Depression. During the most recent recession, real GDP declined approximately 3% and unemployment peaked just over 10%. Whereas during the Great Depression, GDP dropped nearly 30% and unemployment topped 25%ⁱⁱⁱ. And even though the stock market may have lost value, U.S. real per capita GDP still grew nearly 7.5%^iv during the decade, significantly higher than the 2% gain during the 1930’s^v.

What does this indicate for next decade? Not much, just because the last decade was poor does not necessarily mean that next decade will be great. The 1940’s produced only a mediocre return after the pain of the 1930’s. However, it does mean that decades such as the last one are very rare so it is certainly likely that the 2010’s will be better than the 2000’s.

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