A recent analysis by Izidor Flajsman at TD Securities examines the performance of US equities during historical 'lost decades,' periods characterized by flat to negative real returns for headline indices over a decade or more, following eras of strong compounding growth [1]. The study finds that during these lost decades, the annualized real return for equities was -0.2%, in stark contrast to 16.9% annualized real returns outside such periods [1].
The research highlights a significant shift in sector and factor leadership during lost decades. Specifically, Small Cap, Value, Energy, and Non-Durables sectors outperformed, while the broader market and more expensive, cyclical segments lagged [1]. Outside of lost decades, the S&P 500 delivered approximately 17% annualized real returns, outperforming every sector and style basket in the study's universe [1].
TD Securities clarifies that the analysis is descriptive and does not constitute a forward-looking call on US equities. Instead, it aims to identify which passive and dynamic strategies across fixed income, commodities, and equities have historically performed well or poorly once a lost decade was already underway [1].
CONCLUSION
The TD Securities study underscores that during US equity lost decades, Small Cap, Value, Energy, and Non-Durables sectors historically outperformed, while headline indices delivered flat to negative real returns. This analysis provides investors with insights into sector and factor resilience during challenging market regimes, though it does not offer a specific outlook for future US equity performance.