What To Expect From The S&P 500 Over The Next 20 Years

The volatility of the SPDR S&P 500 ETF Trust SPY so far in 2019 is enough to highlight just how unpredictable the S&P 500 can be.

It may seem impossible to predict what’s coming for the market over the next 20 years, but DataTrek Research co-founder Nicholas Colas recently made some predictions about the next two decades based on what has occurred in the past.

History Lesson

Colas said there have been five distinct (overlapping) 20-year periods in the U.S. markets going back to 1928.

First, from 1928 to 1951, the Great Depression put a major dent in long-term returns. Inflation-adjusted, trailing 20-year compounded returns for the S&P ranged from 0.6% to 4.3% from 1948 to 1951.

While starting in 1928 was a disaster for investors, starting just five years later in 1933 wasn’t so bad. The S&P 500 doubled during World War II, and it doubled roughly every 4.3 years from 1942 to 1962 for a trailing compounding average return of 16.7%.

The next extended period for the S&P 500 started at around 1961. High interest rates, high inflation and the oil shock of the 1970s weighed on long-term returns, pushing 20-year trailing inflation-adjusted returns down to just 1% by 1979.

Lower inflation levels, lower inflation rates and the dot-com boom of the 1990s represents the next distinct period for investors. From 1980 to 1999, the S&P 500 experienced just two down years and never had a 5% drop in a single calendar year. In that 20-year stretch, the S&P 500 doubled every four years.

Finally, since 2000, Colas said the market has been defined by volatility. Long-term returns have been terrible given that the S&P 500 has lost a third of its value on two different occasions in the stretch.

In the 20-year period ending 2018, the S&P 500 has compounded at an inflation-adjusted 3%.

The Next 20 Years

Looking ahead, Colas said the keys to strong returns over the next 20 years will be low inflation and some form of major market catalyst.

“America’s development and use of technology will be the key determinant of long-run future S&P 500 returns. With population growth less than 1%, economic growth will have to come from productivity,” he said.

In order to generate market returns equivalent to the post-World War II era or the dot-com boom of the 1990s for the next 20 years, Colas said technology companies will need to figure out a way to make all other industries more efficient.

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