The 1984 classic “Glory Days” remains one of my all-time favorite songs. Perhaps the reason this tune has stood the test of time is that almost everybody over the age of 30 can relate to the experience of catching up with friends from high school (or college) and reminiscing about the good times. The Boss masterfully captures the glorious feeling of nostalgia in this tune’s tale.

“Glory days well they'll pass you by / Glory days in the wink of a young girl's eye / Glory days, glory days"

While baseball is the subject of the character’s reflection in the song, the subject can be anything remembered fondly—even stock markets. In 2022, the “glory days” are those of the bull markets from 2009 to 2021.  

Investors from Wall Street to Silicon Valley can be heard fondly reflecting on the era of low interest rates, accommodating central banks, and cheap money. They discuss stocks that appreciated 1,000%, the tech index annualizing at 20% for 10 years, and when borrowing costs for a home was below 3%.  Some reminisce about buying digital pictures of apes (NFTs) for thousands of dollars. The reality is that sometimes it takes a bad time to remember the good times.  And sometimes it takes reflecting on past events to understand how silly they sound today.

The departure from the glory days of investing happened rapidly. The short-term borrowing rate went from 0.25% to 4% (and climbing) in less than a year. The epic rise is the conclusion of a great run of cheap capital and a run in the S&P 500 from 676 to 4700. Today, the S&P 500 sits at 3,800, or 22% off the all-time highs. The 22% may not sound bad, but the declines in many once popular assets, like Bitcoin (down -55%) and Facebook/Meta (down -71%), have been far worse.  And the decline in the bond index has been -15%, shocking many conservative investors. 

“She says when she feels like crying / She starts laughing thinking about / Glory days”

Many investors are waiting for a return to lower interest by the Fed before buying stocks again.  We do not believe lower interest rates will happen any time in the next several years.  And, much like aging, the change is okay. We are entering a new economic era, and there are plenty of opportunities to achieve investing goals. Akin to life, investors must adapt and move forward as opposed to waiting for conditions to return to those of the good ol’ days. 

While reflecting on the past is fun, do not let the new reality get you down. Speaking of glory days, we look to the 1990s as example of how stocks can achieve returns in an era of higher interest rates. The following chart displays the S&P 500 and the 10 Year Treasury for the glorious decade of the 90s. Note, the 10-year started the decade +8%. That is double the rate today. Stocks can appreciate in periods of higher interest rates.  

The music video tells the story of the glory days phenomena beautifully. When the reflection is over, the ending scene shows the main character playing catch with his son. This symbolizes the acceptance of the passage of time and the new conditions. In fact, the new era may be even more glorious than the past.  

Disclosures

LIM is a Registered Investment Advisor based in Dallas, Texas and registered with the Securities and Exchange Commission. Registration does not imply a certain level of skills or training. LIM is a company with purpose, dedicated to creative and unique thinking. We focus on portfolio valuation and research, along with a superior client experience. We seek to identify investment opportunities by looking at economic factors, security valuation and human behavior. We start with the fundamentals of portfolio management and valuation. Then we build on these fundamentals with unique thinking and creative intelligence gathering to form a viable investment thesis. We believe this approach leads to dynamic global portfolios with increased return and managed risk. LIM utilizes Charles Schwab & Co. Inc. (“Schwab”), a FINRA-registered broker-dealer, member SIPC, as its custodian of assets. LIM is independently owned and operated and not affiliated with Schwab.

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Definitions

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock’s weight in the Index proportionate to it market value.

The Nasdaq Composite Index is a market cap-weighted index, representing the value of all stocks listed on the Nasdaq Stock Market.  The composition of the Nasdaq Composite is a mix of long-established companies that have been on the exchange since inception, to IPO newcomers, companies that grew from OTC exchanges or switched from other exchanges.

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

U.S. Treasury securities are guaranteed as to the timely payment of principal and interest if held to maturity. Investment options are neither issued nor guaranteed by the U.S. government.

The Bloomberg Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.

The Bloomberg U.S. Investment Grade Corporate Bond Index covers U.S. dollar denominated, investment-grade, fixed ratee or step up, taxable securities sold by industrial, utility and financial issuers. It includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity and quality requirements. Securities included in the index must have at lease 1 year until final maturity and be rated investment-grade (Baa3/BBB-/BBB+) or better using the middle rating of Moody’s, S&P, and Fitch.

The Bloomberg US High Yield Index covers the USD-denominated, non-investment grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. A small number of unrated bonds are included in the index. The index excludes emerging markets debt.

Bloomberg Commodity Index is comprised of futures contracts and is designed to be a highly liquid and diversified benchmark for commodity as an asset class.