“It’s the 2008 Crisis all over again,” “Prepare for stocks to fall another 10%,” “World Economy Trapped in a ‘Death Spiral,’ ” “Sell Everything”1 — these were the loudest sentiments we heard from prominent industry participants in the first few weeks of 2016. Yet, as we close the books on another year’s positive gain, we’re reminded that stock market rallies don’t die of old age or pundit predictions. With the S&P 500 advancing 11.96%, we’ve now seen a cumulative gain of over 280% since the lows of 2009.

2016 saw meaningful declines right off the bat with the S&P 500 falling 10.3%. Yet with the exception of a brief Brexit hiccup in the summer, the rest of the year was a slow and steady climb upward, with slightly sharper gains post-election. To put that intra-year drop of 10.3% into context, it’s almost exactly in line with the S&P 500’s average intra-year decline of 10.1% (since 1972).

Even the return of 11.96% was only slightly higher than the long-term average of 10.36% (since 1972), or the 7.5% set out in our Capital Market Assumptions paper. With current inflation running lower than long-term averages, real returns to investors in the U.S. Market asset class were above average in 2016.

Since 2009 we’ve heard that the current stock market rally is long in the tooth, yet in reality nobody knows what direction the stock market will move next. In many ways 2016 was a completely predictable year: Markets went up, markets went down, there were unexpected geopolitical events and some asset classes advanced more than others. Yet none of these merited rash changes to an investor’s long-term financial plan, and neither should any bold predictions for 2017.

Further discussion of the U.S. market returns, as well as examination of how several other asset classes like small, value and international markets performed, will be covered in detail in the upcoming Q4 2016 Making Sense of Markets.

Source: Morningstar Direct 2017. Indexes are unmanaged baskets of securities that are not available for direct investment by investors. Index performance does not reflect the expenses associated with the management of an actual portfolio. All investments involve risk, including the loss of principal and cannot be guaranteed against loss by a bank, custodian, or any other financial institution. Diversification neither assures a profit nor guarantees against loss in a declining market.

1 “Soros: ‘It’s the 2008 Crisis All Over Again,’ ” Matt Clinch, CNBC, January 7, 2016.
“Prepare for Stocks to Fall Another 10%: Larry Fink,” Matthew J. Belvedere, CNBC, January 15, 2016
“Citi: World Economy Trapped in ‘Death Spiral,’ ” Katy Barnato, CNBC, February 5, 2016
“RBS Cries ‘Selling Everything’ as Deflationary Crisis Nears,” Ambrose Evans-Pritchard, The Telegraph, January 11, 2016