The Bigger Picture: S&P 500 Rolling 10-Year Annual Returns

By · Friday, January 13th, 2012

It’s useful to expand our horizons on a regular basis and take a look at the longer-term picture when it comes to the equities markets. It helps put recent events in perspective. Exhibit 1 shows the rolling 10-year average annual total return and the rolling 10-year average annual income return of the S&P 500 from 1926 through the end of 2011. As we can see, recent returns have been downright dismal and most closely resemble the period following the Great Depression in the 1930s. The recent rolling 10-year low was reached in February 2009.

Exhibit 1 also shows the importance of dividends. Although the S&P 500 yield is near it’s all-time low, in the current environment it supplies the lion’s share of total return.




The picture changes a bit when we look at real returns – total returns adjusted for inflation. Exhibit 2 shows the rolling 10-year average annual inflation adjusted total return for the S&P 500 from 1926 through the end of 2011. On a real basis, we can see that the recent market lows are the worst on record since, and including, the Great Depression – bottoming at –5.86% in February 2009. S&P 500 rolling real returns then remained negative until February 2011.


Exhibit2_SP500_Rolling_10Yr_Inf_Adj Annual_TR_20111231

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Another good chart idea is to graph the log of the total return adjusted for inflation expressed as a multiplier over time. Then one can show trendlines and standard deviations.

By William Masciarelli on January 14th, 2012 at 19:05

“Adjusted for Inflation”

Does that mean the last three decades’ inflation numbers have also been adjusted as methods of determining inflation have been changed? I find myself doubting any charts that adjust for inflation without either using ShadowGovernmentStats or reporting exactly what inflation figures they do use.

William, thanks for the comment. We use inflation data based on the CPI provided by the Bureau of Labor Statistics. Our adjusted data matches other sources of comparable data (such as Ibbotson’s SBBI), so we’re comfortable with our results. We’re aware that there is disagreement about the “true” measure of inflation; nevertheless, for purposes of this exercise we have used industry standard data sources.

About ten years ago I used to construct a similar chart as your Exhibit 1, only I’d plot two lines: the 10-year prior rolling return and the subsequent 10-year return.

I did this over different cycle-lengths and found that with a 20-year rolling period the correlation between the prior 20-year return and subsequent 20-year return was like -.9. Visually the two graphs moved in almost lock-step opposing directions. My conclusion was that we move through 20-year cycles in U.S. equities. At that time (~2001) we’d just completed an abnormally high returning 20-year period.



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