Trader John O'Hara at work on the floor of the New York Stock Exchange. (Richard Drew, AP )
The U.S. stock market held up remarkably well in 2011 considering what was thrown at it.
But the market's harrowing ride during the 12 months was a painful reminder of what many investors have endured for the last 12 years: a lot of wild moves, and in the end little net progress.
The Standard & Poor's 500, the benchmark index of the nation's best-known shares, finished last year almost exactly where it began.
More distressing for the ranks of long-term investors is that the S&P index is barely above where it was at the end of 1998. The Dow Jones industrial average, at 12,359 on Friday, has risen a mere 5.4% in price since early 2000.
Technically speaking, stocks have been in a new "cyclical" bull market since rallying from their recession lows in the winter of 2009. But the bigger picture is that Wall Street still seems firmly in the grip of a "secular" bear market — a long period in which prices of many stocks either decline or, at best, go sideways.
This is the third such period since 1920. The first was from 1929 to 1949: the Great Depression years, World War II and its immediate aftermath. The second was from 1966 to 1982, a time of soaring inflation and economic stagnation.
For investors trying to decide whether equities are worth the risk, the secular trend is of course a critical issue. If you don't believe that share prices can be significantly higher in 10 years, what's the point of owning them?
Market professionals acknowledge U.S. blue-chip stocks' dismal performance over the last decade, but many also see it as a stronger argument for buying than for selling. After all, secular bear markets eventually should give rise to new secular bull markets. The longer stocks struggle, the closer they should be to breaking out of their malaise.
"If we look back in a few years this could be one of the rare opportunities to buy stocks," said Ed Clissold, global equity strategist at market research firm Ned Davis Research in Venice, Fla.
But even the optimists temper their enthusiasm about the market's prospects, as the developed world struggles under the mountain of debt built up over the last 30 years. Almost no one believes that stocks are on the verge of a long-term surge similar to the spectacular 1982-to-1999 bull run, which followed the go-nowhere market of '66 to '82.
"I'm not saying equities are going to be great. I'm saying they can be the best return in a bad neighborhood," said Bob Doll, chief equity strategist at money management titan BlackRock Inc. in New York.
With interest rates on high-quality bonds near generational lows, and with cash accounts paying near zero, even if the percentage return on stocks averages only in the mid-single-digits over the next five to 10 years that could look good in comparison.
Still, the risk of steep losses is ever-present in equities — which investors were reminded of last year. As Europe's government-debt crisis worsened and many emerging-market economies slowed amid rising inflation, stock markets worldwide ended broadly lower in 2011.
The average foreign-stock mutual fund slumped 14% for the year, the first annual decline since the market crash in 2008, according to data firm Lipper Inc.
U.S. stock funds in 2011 mostly fared better than their foreign rivals, in part because some frightened global investors sought American securities as a relative haven. Also, as the U.S. economy defied predictions that it would fall back into recession in the second half of the year, and as corporate earnings overall continued to rise, the market rebounded from its lows reached in October.
Most broad categories of domestic stock funds were down between 1% and 5% for the year.
"The market has been surviving a crisis of confidence more than a crisis of the economy," said Jim Stack, who manages $700million for clients at InvesTech Research in Whitefish, Mont.
Despite signs of underlying strength in the economy, Americans' confidence about the future remains weighed down by still-high unemployment and underemployment, the deeply distressed housing market, state and local government austerity and the bitter partisan battles in Washington.
What's more, with stocks suffering two horrendous crashes in nine years — the 2000-02 plunge and the 2008 collapse — some investors are unwilling to take the chance that another dive could be on the horizon.
For the fifth straight year in 2011, conventional stock mutual funds that own U.S. stocks saw more money flow out than in. The funds had net redemptions of $115 billion in the first 11 months of the year, or 2.8% of total assets, according to the Investment Company Institute. That followed outflows of $28billion in 2009 and $95billion in 2010, even as the markets recovered.