What Investors Can Learn From Past Super Cycles

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In our previous article on super cycles, we explored why investors should pay attention to longer-term economic and financial trends as they consider their next investment move.

Let’s now take a closer look at these super cycles with Goldman Sachs Research’s Chief Global Equity Strategist Peter Oppenheimer. He found that since the end of World War II, there have been five major super cycles that have disrupted and changed the world.

By understanding what happened in past cycles, it could give us insights into how structural changes may shape the future, according to Oppenheimer.

The five major super cycles in developed economies

Between the end of World War II and 2020, five major super cycles emerged. While each super cycle has had different drivers and investment return profiles, they are a function of the confluence of economic, political, and social drivers.

Oppenheimer stressed that while cycles and structural breaks do repeat themselves, they never repeat in the exact same way. Take a look at their profiles (note: The returns refer to US equities):

1949–1968: Post-War Boom

  • Total returns: 1,109%
  • Annualized returns: 14%

Post-World War II, there was a period of strong economic expansion, institutional building, and lower geopolitical risk. It was the beginning of global institutions like the World Bank and International Monetary Fund (IMF).

There was the rebuilding of Europe and Japan with the Marshall Plan, and it resulted in a long period of strong economic growth. A baby boom and rapid technological change led to a powerful consumer boom of the 1950s and 1960s.

1968–1982: Cold War and Social Unrest

  • Total returns: -39%
  • Annualized returns: -4%

After the boom comes the bust. This long period was dominated by high interest rates and inflation, labor unrest, and a collapse in global trade along with rising government deficits. It was also marked with low returns driven by the collapse of the gold standard in 1970s and the collapse of the Nifty Fifty bubble. The Nifty Fifty was a group of large mega-cap stocks that plunged in the 1973 market crash.

The Cold War heated up, along with Middle Eastern tensions that triggered oil embargoes, which resulted in a collapse in global trade and drove up debt.

1982-2000: Modern Cycle

  • Total returns: 1,356%
  • Annualized returns: 16%

This is a longer period marked by less volatility than the traditional cycles before. Oppenheimer calls it the Modern Cycle, dominated by the Great Moderation, disinflation, and falling cost of capital; it peaked with the technology bubble. Supply-side reforms were big with deregulation and privatization.

The Modern Cycle marks the start of the modern era of globalization, in which there was increased international cooperation – the World Trade Organization (WTO) formed in 1995 with China joining later in 2001. The Soviet Union collapsed after the fall of the Berlin Wall, lowering geopolitical tensions.

Oppenheimer believes all these factors drove a profitable secular upswing.

2000-2009: Bubbles and Bursts

  • Total returns: -58%
  • Annualized returns: -9%

Bubbles and bursts marked this period starting with the technology bubble in the early 2000s and then followed by the Great Financial Crisis. Falling interest rates provided conditions for the US housing bubble, leading to its collapse. The financial crisis that followed resulted in a deep structural bear market.

2009-2020: Zero Interest Rate Era

  • Total returns: 417%
  • Annualized returns: 16%

An era of zero interest rates and quantitative easing came after the financial crisis, which resulted in a big upswing in the markets driven by rising valuations and cheap money. The US equity market rose to dominance as technology drove a large wedge between growth and value.

A new super cycle has already started

The pandemic marked the start of a new emerging super cycle called the Post-Modern Cycle, as coined by Oppenheimer. During this cycle, we have already seen dominant themes in higher interest rates, shifts in world trade, technology, and decarbonization.

As this young super cycle runs its course, Oppenheimer urges investors to remember to keep focusing on the longer term and how the world is changing around them to inform their next move.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this website were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions.