January’s huge market correction was just the beginning of a lost decade in stocks, Stifel’s chief equity strategist says

Stocks experienced a brutal correction in January before bouncing to end the month down roughly 5%. That may be just the start of the pain for passive “buy-and-hold” investors, according to Barry Bannister, the chief equity strategist at Stifel, a St. Louis–based investment bank.

In fact, the strategist is predicting an entire decade of suffering ahead for markets as the Fed raises interest rates, with 0% returns for investors.

“Buy and hold is the ideal strategy in the bull phases…but in the down phases, being in the index is not going to generate a positive return. Investors who are passive are going to suffer,” Bannister told Insider in an interview last week.

Passive investors who often choose to hold indexes like the S&P 500, which tracks the 500 largest companies traded on U.S. exchanges, saw a compound annual rate of return of more than 13% over the past decade, but the market hasn’t always been so kind to its most patient players.

Historically, 20-year total stock market returns have always been positive, but there have been multiple, decade-long periods when passive investors have lost money, Bannister explained.

He argues that the past decade of passive management outperformance may be over, as four-decade-high inflation, rising geopolitical tensions, and increased regulatory pressure are set to eat away at real returns for stock investors.

“As long as the laws of supply and demand exist, we’re going to have [supply-chain] disruptions, geopolitical rivalries, fiat currencies, indebted governments, populism, and [profit] margin and regulatory pressure,” Bannister said.

Not his first “lost decade” prediction

This isn’t the first time Bannister has made a “lost decade” prediction.

He argued passive investors would struggle with a “lost decade” back in 2018 as well, telling CNBC that 2019 would likely be a recession year with a decade of sideways trading set to follow.

He was wrong. Stocks have gone on quite the run since then, with the S&P 500 rising 31% in 2019, 18% in 2020, and 28% in 2021, adding credence to the theory that attempting to time market entries may not be the best choice.

Bannister argued then, as he does now, that the Fed had pushed stocks into bubble territory by maintaining historically low-interest rates and injecting billions into the economy through quantitative easing (QE), a policy in which central banks purchase bonds in order to increase the money supply and encourage lending and investment. He suspected then there would be a price to pay after the Fed pulled the training wheels off the market.

“Central banks front-loaded equity prices,” Bannister told CNBC in April 2018. “The ‘payback’ is now a long, flat decade ahead.”

From 2018 to 2019, the Fed increased interest rates to nearly 2.5% after several rate hikes, and S&P 500 returns did turn negative in 2018. But at the beginning of the COVID-19 pandemic in early 2020 the Fed slashed rates to nearly zero, and equities responded with a strong run.

Now, with the Fed beginning to raise rates again, and planning an additional six or more raises through 2022 along with an end to QE, Bannister is back on the lost decade bandwagon.

But this time, he sees rising geopolitical rivalries and ongoing supply-chain disruptions being a bigger contributor to potential poor returns for stock investors—and he’s not alone.

Not alone, this time

Analysts at Goldman Sachs also recently warned of the potential for a lost decade for passive investors, especially those who stick with historical allocations like the 60/40 portfolio.

The classic 60/40 portfolio—which is named for its allocation split of 60% stocks and 40% high-grade debt—is down roughly 7% in 2022 as low interest rates and inflation have turned real bond yields negative.

Since 2000, passive investors with a 60/40 allocation have experienced inflation-adjusted returns of around 7.5% annually, according to Morningstar, but that period of outperformance may come to an end—and it wouldn’t be the first time.

During the “lost decade” of the 2000s, the 60/40 portfolio returned just 2.3% to investors annually, and lost value on an inflation-adjusted basis, according to what Goldman Sachs Asset Management’s Nick Cunningham wrote in October, Bloomberg reported. They made up for it in the next decade.

To avoid the trap of passive investing in a bear market, Goldman analysts recommend investors focus on “real assets,” like raw materials, real estate, and infrastructure while increasing diversification.

Analysts from the Investment firm KKR argue that investors might need to take more risk and be active participants in the market to earn strong real returns.

“The current crisis makes forecasting risk parameters such as risk of loss, volatilities, and correlations only more challenging. This backdrop means that investors must take on more risk for the same expected return,” Henry McVey, KKR’s head of global macro, balance sheet, and risk, and Racim Allouani, a managing director, told Bloomberg.

This story was originally featured on Fortune.com