December 26, 2022

We might be in for quite a ride to nowhere with the stock market over the next several years.

More specifically, I mean we might enter and remain in a sideways market. That’s when major stock indexes fluctuate up and down, but don’t create new highs for a decade or more. In these markets, even veteran investors can peter out and lose it all.

A primary example is Japan. Its last market high was in 1989:

Americans may be about to board such a train.

According to Dow Jones, there have been four major sideways markets in the U.S. since 1900, with each one happening after a big bubble  or bull run. The worst one lasted 25 years, from 1929-54. After the “dot com” bust in 2000, the Nasdaq Composite Index suffered a 15-year sideways run.

But the scariest example remains Japan.

Looking at the above chart should give “buy the dip” investors pause. Buyers of the Japanese dip have been doing so for 33 years and still aren’t fully profitable! They could get there, but I imagine the psychological damage from multiple decades of ups, downs, and nowheres is permanent. Many investors probably bailed at some point, admitting defeat in search of greener pastures elsewhere.

If U.S. markets go sideways, it could take decades of volatility before a new high is hit. Say the peak was in January 2022 and you retired then. You might endure nothing but volatility until 2055.

More frightening is how Japan’s central bank, the Bank of Japan, kept interest rates too low for too long. Borrowing and stock speculation followed. Housing prices shot up, keeping younger buyers on the sidelines. The stock market flew high, doubling in the two years before it peaked. Then in 1990, it all stopped. Interest rates increased, speculators vanished, housing prices fell, and stocks decreased.

Sound familiar? It’s all occurring in the U.S. right now. Hopefully we’ll see something different in 2023.

But no matter what markets or the economy are doing, we thank all our readers for sharing another year with us at Dan White and Associates. Please enjoy the new year with your family and loved ones. The best of everything in 2023 – Happy New Year!