Any Happy Returns

Chapter 82009–2020: The Post‐Financial‐Crisis Cycle and Zero Interest Rates

We cannot solve problems by using the same kind of thinking we used when we created them.

—Albert Einstein

The period between 2009 and 2020 represented the third great secular bull market since World War II.

Total returns after inflation and including dividends were 417% over this period (Exhibit 8.1), annualising at 16%. Falling interest rates resulted in sharp rises in valuations: the Shiller P/E (the price divided by 10‐year trailing earnings) rose from an already high 20× in 2009 to over 31× in 2020 which, coupled with strong profit growth (earnings annualising at over 10%), drove remarkable returns.

Exhibit 8.1 Total returns after inflation and including dividends were 417% over the cycle between 2009 and 2020, annualising at 16%

NOTE: Shiller price/earnings (P/E) is a valuation measure. It is calculated by dividing the index price level by the average inflation‐adjusted 10‐year earnings per share (EPS).

SOURCE: Goldman Sachs Global Investment Research

The main characteristics were:

1. Weak growth but high equity returns
2. The era of free money
3. Low volatility
4. Rising equity valuations
5. Technology and the outperformance of Growth versus Value
6. The outperformance of the United States versus the rest of the world

1. Weak Growth but High Equity Returns

Unlike the secular bull markets of the previous ...