I was looking at a long term chart of the US markets, and it seems that there are extremely long periods where stocks do basically nothing.
Just look at 1934 – 1950, or 1950-1982 as an example. Sure the market ran up big from 50-66, but from 66-82 it gave it all back. So anyone who started investing in 1950 would have almost no returns for 30 years! That's brutal.
It seems that it's only when Volcker killed inflation and we had a 40 year period of declining interest rates that US markets did well consistently. People's opinions on investing and valuations today is a result of 4 decades of low inflation and lowering interest rates. Now that we're seeing this come apart due to higher inflation and higher rates, I'm worried about what this means for investors, especially as the inflation is much stickier than people initially believed.
So with that said, can the stock market do well without intervention from the Fed? What is fair value if there's no QE, and interest rates are at 3-5%?
Also, over the last 10 years, the most crowded trade has been index investing. Some people are saying now that the next 10 years will favour active management, and this crowded trade (indexing) will be a painful unwind.
Thoughts on this?
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