A Historical Cycle Bodes Ill for the Markets AT the turn of the last century, it was widely accepted that American stocks were virtually certain to be good long-term investments. Now, far fewer people are confident of that. A major reason for the earlier confidence was that in the 15 years from the end of 1984 through the end of 1999, the total return of the Standard & Poor's 500-stock index was more than 740 percent, even after adjusting for inflation. That amounted to a compound annual real return of more than 15 percent. At the end of 2011, by contrast, the 15-year return - from the end of 1996 - was just 3 percent. And most of those gains came in the first three years of the period. Since the end of 1999, the stock market has not come close to keeping up with inflation. The first of the accompanying charts shows compound 15-year real returns on stock market investments from the period that ended in 1943 through the one that ended last month. Broadly, it appears there is a cycle that is repeating itself, in which the 15-year return tops out at more than 15 percent and then falls precipitously. In June 1964, the real return over the previous 15 years averaged 15.6 percent a year, the highest that figure had ever been. The stock market did not begin to fall then, but it could no longer maintain the torrid pace, and the 15-year return figures began to decline. On a real total return basis, stock prices hit their highs for the era in late 1968, and by the mid-1970s were in free fall as high inflation combined with a bear market. By 1979, an investor who bought stocks in 1964, when the market seemed to be a sure moneymaker, had lost money after adjusting for inflation, even after including dividend income. In the early 1980s, the stock market turned around, and by mid-1997 the 15-year return figure had reached a new high of 15.8 percent. The second chart overlays the two cycles. The first line goes from the end of 1943 through the end of 1980, when the line was in negative territory. The second one, beginning at the end of 1980, continues through the end of last year. The match between the lines is far from perfect, but there are significant similarities. If past is prologue, the 15-year return is likely to continue to decline and to turn negative in about four years. That does not necessarily imply that stocks will fall during that period, since that could happen with small gains over the period. And, of course, there is no assurance that history will repeat itself. It is probably significant that opinion surveys show Americans are more pessimistic than they have been in many years. There is a fear that the American economy is in decline and that this country will be unable to compete with emerging Asian economies, principally China. There was a similar fear in the late 1970s, although then the fear was that the United States could not compete with Japan. Perhaps overconfidence inspired in part by a strong stock market also played a role in American military history. Within a few years after the 1964 peak for 15-year returns, the United States escalated the Vietnam War. Within a few years after the 1999 peak, the United States decided to invade Iraq. The other two charts indicate that the stock market may have done surprisingly well over the last 15 years, considering how little the economy grew over that period. Through the third quarter of last year - the most recent data available - real gross domestic product had risen at an annual rate of just 2.3 percent over the previous 15 years. That was the lowest return since the 15 years ending in 1960, a period that was distorted because it included the rapid decline in real gross domestic product in 1946 as the production of weapons halted after World War II. Similarly, over the last 15 years the total real personal income earned by Americans has risen at an annual rate of just 2.6 percent. That is the lowest for any similar period for which G.D.P. data is available. Both the G.D.P. and personal income rates of growth are well below where they were when the cumulative stock returns bottomed out in 1982. After the pessimism of the late 1970s and early 1980s, the economy and the stock market turned around as it became clear the American economy was resilient and could adapt to a changing world. The question now is whether that can happen again.