Investors can have few complaints about the last decade or so. Stock market returns have been double-digits, even after adjusting for inflation (figure 1). That’s way ahead of the ‘lost decade’ of the 2000s, when real returns went negative, and it trumps the typical experience of around 6%. Balanced funds, which mix stocks and bonds, have also delivered for investors. A medium risk, global strategy has delivered over 7% annual real returns for the decade to end-2021. That’s impressive in the context of the sluggish economic recovery after the financial crisis, fiscal austerity, and the global pandemic.

It’s been a Goldilocks phase for investors but, since the start of 2022, markets have gone from ‘hero’ to ‘zero’. Year-to-date investment returns are significantly negative. US treasury bonds have had their worst quarter since the ‘Great Inflation’ of the 1970s and 1980s (figure 2). And post-covid stock market winners, like global tech, have materially underperformed ‘defensive’ sectors, like energy and utilities. If we adjust for inflation, market performance looks even worse.

Read Joseph’s essay From Goldilocks to Supply Shocks.