The Numbers Behind the Feeling of "New Normal"
Through the end of September, the S&P 500’s annualized returns across different look-back windows show a clear pattern: the shorter the window, the further above the long-run average it sits.
| Time horizon | Annualized return | Long-run average (~100 years) | Gap vs. average |
|---|---|---|---|
| 3 years | +22.9% | ~10% | +12.9 pts |
| 7 years | +16.2% | ~10% | +6.2 pts |
| 10 years | +15.3% | ~10% | +5.3 pts |
| 15 years | +15.7% | ~10% | +5.7 pts |
| 20 years | +11.2% | ~10% | +1.2 pts |
| 30 years | +10.3% | ~10% | +0.3 pts |
| 40 years | +11.5% | ~10% | +1.5 pts |
| 50 years | +11.9% | ~10% | +1.9 pts |
The pattern is almost geometric: windows of 20 years or longer sit close to the long-run average of roughly 10% a year, while anything 15 years or shorter is meaningfully above it. That’s not a coincidence of math alone — it reflects the fact that the last decade and a half has simply been an unusually good stretch, one strong enough to pull every shorter rolling window up with it, while the longer windows still include enough of the weaker 2000s to stay anchored near the historical norm.
Why Mean Reversion Is Real but Slow
The underlying logic here is genuinely simple: if returns average out to roughly 10% a year over a century, then a long stretch well above that average has to be offset, eventually, by a stretch below it. Rolling 15-year return data for the S&P 500 going back roughly 100 years shows this as a recognizable wave — good multi-year cycles followed by bad ones, repeating over time.
That’s the part of the story that’s genuinely useful. The part that isn’t useful — and where the analogy tends to get misapplied — is turning "cycles exist" into "this cycle is about to end." The source behind this data is candid about that limitation: the honest answer to how much longer the current run of above-average returns can continue is that nobody knows. Investors have been warning about stretched valuations since the mid-2010s, and above-average returns kept arriving anyway. Mean reversion being real doesn’t make it punctual.
Two Ways to Use History
This is where it helps to separate two very different instincts that can both feel like "learning from history."
flowchart TD A[Strong multi-year returns observed] --> B[Lower future return expectations] A --> C[Try to call the turning point] B --> D[Plan built with a margin of safety] C --> E[Unreliable: timing is not visible in real time]
One path uses the historical wave pattern to recalibrate what you expect going forward — treating the strong run as a reason to plan more conservatively, without pretending to know when the shift arrives. The other path tries to use the same pattern as a signal to act now, buying or selling based on where we "must" be in the cycle. Only the first path is defensible with the data available. Cycles are identifiable in hindsight, once the full shape of a boom or bust is visible, but that clarity simply isn’t available while you’re living inside one.
The Late-1990s Echo, and Where It Breaks Down
It’s tempting to reach for the most famous recent analogy: the late 1990s, when the S&P 500 returned more than 20% a year for five straight years at the tail end of a two-decade bull market, fueled in part by a transformative technology narrative. The years since 2019 have produced a similarly strong, if less tidy, run — including a sharp 2022 drawdown that the late-1990s stretch didn’t have. An AI-driven boom extending this cycle toward dot-com-era or postwar-era heights "wouldn’t shock" the author of the source data.
But the honest caveat matters as much as the comparison. The entire sample of comparable secular bull-and-bear cycles in this dataset amounts to roughly three major booms and three major busts — far too few data points to treat any single past episode as a template for how the current one will resolve, whether in timing, severity, or shape. The next reversion could arrive as a sharp drawdown, a long sideways grind, or something more uneven than either, and there’s no reliable way to know in advance which one this will be.
Building a Plan That Survives Either Outcome
The most defensible response to this entire body of evidence isn’t a forecast — it’s a planning adjustment. Lowering your assumed future return a notch, even while a bull market may still have years left to run, creates a margin of safety: if returns do eventually revert toward the long-run average, you’re prepared for it; if the strong run continues, you simply end up pleasantly ahead of plan.
That framing turns a genuinely uncertain question — when will this cycle end? — into a manageable one: how do I build a plan that doesn’t depend on guessing the answer? Long stretches of strong returns can run longer than almost anyone expects. The practical lesson isn’t to predict the turn. It’s to make sure your financial plan doesn’t need to.
