Lost Decade Coming Down The Road?

This video goes against my personal interests. I don’t agree with everything he says but I think it is valuable for people to know about lost decades and times of stagnation in markets. Times like we are in, quality matters more than ever.

Here is another source on why the US could have a lost decade: https://www.marketwatch.com/story/why-this-strategist-is-expecting-a-lost-decade-for-u-s-stocks-even-without-a-recession-f6b17958

Summary of Article:

Tech stocks led a market decline following a warning from Nvidia and additional pressure from a major European tech firm. Amid this weakness, strategist Marko Papic of BCA Research is sounding a bearish alarm on U.S. assets. Over a 5-10 year horizon, he expects U.S. underperformance in nearly all scenarios, recession or not.

This outlook is rooted in the shift away from the unique macro conditions that benefitted the U.S. from 2010–2020: low growth, low inflation, and a disinflationary environment that fueled long-duration assets like tech. Papic argues that post-2020 gains were artificially driven by massive fiscal stimulus (especially between 2017 and 2024) and a surge of AI-driven optimism—not sustainable structural advantages.

He’s especially skeptical that AI will remain a uniquely American growth story, citing January's DeepSeek example as proof that AI innovation can quickly globalize, much like the railway boom, which ended up benefitting multiple countries—not just one.

Papic also sees the current tariff wars as symbolic of waning U.S. dominance. While he calls the tariffs a “sideshow,” he argues that U.S. aggression will prompt stimulus and reform abroad, indirectly weakening America's relative investment appeal.

Strategist Mathieu Savary sees Europe as the next opportunity, suggesting we may be at the start of a multi-year phase of European outperformance. While Europe has lagged U.S. equities long-term, it’s historically experienced multiple 5–10 year stretches of outperformance. He highlights:

• Europe’s less austere fiscal stance recently

• A valuation gap that persists even after adjusting for sector composition

• A potential 20% valuation recoup purely on mean reversion

Still, strategist Matt Gertken cautions that European outperformance may hinge on China stepping up with stimulus or reform, which remains uncertain.

Closing Thought:

The U.S. could be facing a "lost decade" from 2025 to 2035—though, of course, no one can say for sure. What I do believe is that we're entering a period where equity returns, especially in the U.S., may not match the strong gains we’ve seen over the past 7–8 years. A big part of that past performance was driven by extraordinary levels of stimulus. Price-to-earnings (P/E) multiples have expanded significantly—from around 17 when Trump took office in 2017 to over 23 today. A reversion in asset prices back to pre-pandemic levels wouldn’t surprise me. That said, neither would a continued rally fueled by AI. Both outcomes are in play. In a market where valuations have already run high, the importance of quality can’t be overstated. If growth slows—and I believe it will—the high-flying, high-multiple stocks are likely to get hit the hardest. Companies with more reasonable valuations and a focus on fundamentals are better positioned to weather that kind of shift.

My advice: If you want to stay invested or plan to buy in, focus on quality. Now more than ever, it matters.

Extra Technical Jargon Note: If you're familiar with DCF (Discounted Cash Flow) models, this will make sense. Let’s say I require a 7.5% return. If I expect a company to grow earnings at 5% annually for the next 10 years, and then expect the growth rate to slow down to 2.5% for the remaining 40 years (or up until the 50-year mark), I’d be willing to pay a price that reflects a P/E multiple of around 21.52. Paying more than that would mean I fall short of my required return. Paying less would give me a cushion, potentially earning more than my target return.

This leads to a broader point: our expectations around returns and growth may need to adjust. Based on current market valuations, if you simply bought the index today and held it for 10 years, it’s unlikely you’d achieve the historical 10% annual return. That means we have a few options:

1. Accept lower expected returns and be comfortable with that;

2. Extend our holding period — for example, if you’re willing to hold for 20–25 years, the price you pay today can be higher while still meeting your return goals;

3. Focus on high-quality businesses you’re comfortable holding long-term;

4. Or, get really good at stock picking, which is tough unless you understand the business and how to value it. Maybe you can find those one or two stocks that will explode to the upside and crush the market.

Bottom line: the investing environment is changing. Be realistic about return expectations, time horizons, and the quality of what you own.