The past 10 years have been dramatic for the stock market, witnessing the end stage of a gigantic bull market run, a vicious bear market, another strong bull run and another violent bear correction. Understanding the stock market performance of the past decade can help you better make sense of where the market might be going in the future.
At the end of the 20th century, American and global stock markets were in the largest bull market in world history. In 1999, the technology-heavy Nasdaq doubled on account of the dotcom speculative frenzy. The S&P500 and Dow Jones Industrial Average also pushed higher at a less dramatic pace. Then, in spring of 2000, investors began to finally realize the bull market had entered bubble territory, with stock prices having been bid up to ridiculously high valuations. An incredibly strong bear market ensued, wiping out billions of dollars worth of paper profits.
The past 10 years have been a boon for some and a bankrupting bane for others. That is also the case in the stock market, but the past 10 years have been even more dramatic and volatile than usual, in effect bringing about the transfer of trillions of dollars from incompetent or unfortunate investors and speculators to the very skilled or very lucky.
The past 10 years featured numerous instances in which many investors thought they were tremendously wealthy because their shares of stock had risen so far. Unfortunately, many thought the good times would never end and did not cash out on these paper profits. A few years later, their multimillion- and, in some cases, multibillion-dollar portfolios withered to a tiny fraction of what they were at the bubble peak. While this phenomenon is most closely identified with the dotcom crash, similar losses were experienced during the subprime crash of 2007 to 2008.
There were four types of environments in the stock market during the past 10 years. The first was a bull market. The next, starting in 2000 and ending in 2002, was a bear market. From 2003 to 2007 was a bull market, although far less strong than the bull market closing the 20th century. And finally, toward the end of 2007, the next bear market began, featuring a high-to-low price decline of more than 50 percent on the major stock indexes.
Some market participants suggest the bull market peak in early 2000 represented the end of a secular bull market and the beginning of a secular bear market likely to last the next two decades or longer. They believe the bull run from 2003 to 2007 was a cyclical bullish counter trend within a broader, longer-term secular downtrend, which would take index prices lower than they’ve been in decades.
The past 10 years in the stock market have arguably disproved the popular misconception that the best way to make money in stocks is to buy and indefinitely hold. This might work well if you purchase shares in fundamentally sound companies at a good price, but the notion you can just put your money anywhere and count on prices being higher in five or 10 years is a dangerous myth.