The Many Market Narratives

Monday, November 25th, 2019

By: Jim Callahan, CFA

Nobel laureate Robert Shiller recently stated, “No one can speak authoritatively about the future.  That’s where narratives come into play.”

As we enter the final month of the decade (!), we find the stock market bumping up against all-time highs despite the trade war, violence in Hong Kong, and a presidential impeachment trial.  It seems hard to define the narrative that reconciles these issues with such strong investment returns, no?

A quick look back at what investors have endured tells us that there’s always something to worry about.  In order to have earned the 12% annual return in stocks since 1925, you’ve had to ride through two world wars, ever-changing tax policies, technological disruptions, and increasingly volatile natural disasters.  The intersection of these narratives is a big driver of future market environments.


The most recent decade began with a fragile recovery out of The Great Recession but has grown into the longest bull market on record.  The 13% annualized return over the past 10 years is stronger than the average 10-year return of 10%.  Many pundits say we are late in the cycle, and that current valuations suggest a tougher future for 10-year returns.

While we wouldn’t argue either point, this isn’t the only narrative to consider.  Many folks date the beginning of this cycle as of March of 2009, the bottom of the Great Recession.  But another definition of cycles dates the beginning as of August 2012 — over three years later — when the market surpassed the previous market high.   Depending on how you look at it, this cycle may have room to run.  The point here is to consider all possible outcomes, not focus on one prediction of how the future will play out.


As we enter a new decade, there’s no shortage of topics that you might be dwelling on.  How should you manage your investments given these issues?  We’d propose thinking less about predicting what the narrative of the future will be and more about planning for the range of possible outcomes that may arise.

Recall Dr. Shiller’s quote above when flipping through the flood of “Outlook 2020” articles and reports you’ll be receiving.  Focus instead on your process for solving problems, both the anticipated and the unexpected.  Consider all possible scenarios and how they may affect you.  Having the right team beside you to execute such a process is far more impactful to your future success.