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Market Statistics

Twenty Years Of Financial Engineering

Investors should thank the Federal Reserve for twenty years of successful financial engineering.

Someone posted in Twitter S&P 500 total returns by decade and claimed that this decade was not out of the ordinary with about 256% gain as compared to about 430% in the 90s.

This is of course a false comparison and claim because it ignores context. This is like thinking that numbers are the process itself, which is a rudimentary mistake.

After the dot com crash there was rising skepticism about the stock market. Many people lost too much money during the three years of the bear market.

Then in 2008 a fast bear market came to finish the rest who thought they should hold. Many sold near the bottom after a 50% decline from all-time highs and closed the book on the stock market to never come back.

It is not about companies and their strength; it is about trust in a market that has delivered two 50% drops in just ten years from 2000 to 2009.

U.S. companies are doing just fine, referring back to the Twitter post I mentioned, but this is not the 90s and far from that.

Bulk of stock market gains this decade came from disruptive schemes, redesigning of old products and a humongous dose of quantitative easing.

So anyone who compares just the numbers of the 90s to recent is in best case, naive. The numbers are not the process.

Here is a chart of S&P 500 rolling 10-year returns since 1990.


Anyone with just a tiny understanding of the above chart only has to say:

Thank you Fed

Best wishes for a Happy and Prosperous New Year.

Charting and backtesting program: Amibroker

Data provider: Norgate Data

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