Quantitative Easing

Lucky 13! Return on investment over 13 years


  • U.S. stocks have performed extremely well over the past 13 years, but bonds have not
  • Stock market performance is in the top decile of all 13-year stock returns over the past 96 years
  • Quantitative Easing (QE) was the driving force. What will happen at the end of QE?

It’s official. The comeback in the 13 years since the 2008 stock market crash has been tremendous. In this article, I take a look at the 13-year history of stock and bond returns to put the most recent 13-year period in perspective. It was indeed extraordinary.

A phenomenal recovery

Aside from a rapid decline in the first quarter of 2020, the US stock market as measured by the S & P500 has skyrocketed since 2008, increasing by around 600% when dividends are included. Along with the stiffness of this pickup, it’s the longest pickup on record if you don’t think of the 2020 blip as the end of the pickup.

Most investors should feel that the past 13 years are the best ever, because they almost have been. The following section examines the 85 13-year periods ending in December.

13-year ROI history

The following illustration shows all 13-year returns for the stocks. The US stock market as measured by the S & P500 returned 600% over the 13 years ending December 2021 (bar on the far right of the exposure), or 16% per year. It ranks 9e over 84 periods of 13 years, therefore the top decile.

The highest 13-year return is 863% earned over the 13 years ending December 1955, averaging 19% per year.

As you can see in the last 2 bars on the right, the move from 2020 to 2021 replaces the 37% loss of 2008 with the 30% gain of 2021, propelling the 13-year return higher.

Returns are on average 323% (12% annualized) over the entire history, so the recent return is 185% of the average.

13 year returns

In contrast, bond yields were below average, yielding 4.4% per annum versus 6.6% on average. Bonds earn their coupon plus capital gains or losses. Falling coupons generate capital gains, but in this case the total returns were below average as coupons fell well below average.

13-year bond

And after

The returns on investment over the past 13 years have been driven by an experiment called Quantitative Easing (QE). Warren Buffet observes that QE is an experiment of scale and consequence that has never been carried out before. No one knows how it will end and what its effects will be, but it looks like at this point that QE will be gradually reduced from 2022.

Much of this recovery has been orchestrated by the Federal Reserve with its zero interest rate policy (ZIRP), an aspect of QE. ZIRP required the massive printing of money of around $ 5,000 billion to buy bonds, manipulating their prices above natural levels. But inflation is now forcing the Fed to “tap” – to reduce its bond purchases. At the end of the manipulation, bond yields will rise, especially if inflation persists, as it probably is.

Rises in bond yields lower bond prices. It should also push stock prices down, as analysts discount future earnings at a higher discount rate and bonds regain their position as a low-risk alternative to stocks.

The end of ZIRP is the end of the manipulation of stock and bond prices. As Warren Buffet observes “When the tide goes out, we see who swam naked”. Without this “invisible hand”, the prices of stocks and bonds will be determined by investors, as was the case before QE.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.