| NEW YORK
NEW YORK In 1998, when the Dow was looking to break above the 10,000 level for the first time, high-waisted Levi's, big shirts and pleats were the height of cool.
Usually, it's fashion that comes full circle.
But 10 years later, it is the U.S. stock market that is back exactly where it was then -- and big shirts are still languishing at the back of the closet.
"It's a lost decade. The numbers are what they are," said Dan Genter, president and chief executive of RNC Capital Management LLC, in Los Angeles.
Lost, but hardly forgotten. From the tech boom and bust to the September 11 attacks to the easy money days that created the housing bubble and subsequent credit crisis, it has been a whiplash of a decade.
And while stocks are back to where they started in terms of the levels of the Dow and the benchmark S&P 500, total return -- including returns from dividends -- is still up, though if the market continues dropping at this rate, it will soon be negative.
What's more, it could be difficult for stocks to break out of their funk. Some analysts flag the possibility of not just
one lost decade, but perhaps two, given the deteriorating economy and the likelihood of equity-unfriendly aftereffects of the various rescue efforts undertaken by governments and central banks worldwide.
"We're going to need to have higher taxes, no matter who is president, to pay for this mess that we are in. And maybe we'll get what in the '70s they called stagflation because there is so much money floating around out there now, along with a slack economy," said Carl Birkelbach, head of Birkelbach Management in Chicago.
Flatlining for a decade or more is hardly new. From the time the Dow first approached the 1,000 level in early 1966, it took nearly 17 years for it to crack through it for good.
"It could be another one of those periods," Birkelbach said. "And that means that 'buy and hold' is no longer applicable. If one is to invest in the stock market, one is going to have to be more attuned to timing and also selection."
Jim Bianco of Bianco Research said he believes the market will be treading water over the next 10 years, as increased regulation will remove incentives to take risks.
"They are in the process of trying to prevent a crash in the market by piling on more regulation and government intervention. My fear is that by reining in risk taking and entrepreneurial spirit, you are going to remove any upside potential in the market for years to come," Bianco said.
SOME SEE GLASS HALF FULL
Not everyone is as ready to kiss away the next 10 years, though.
"I don't see why the fact that we lost the last decade means we are going to lose the next one," said Robert Whitelaw, a finance professor at New York University.
"Surely there is a risk premium embedded in stock prices and over the long haul, barring unforeseen circumstances, like another credit crisis-type scenario, you are going to get that risk premium," Whitelaw said. "It doesn't come steadily, but that's why it's a risk premium. It's risky."
Whitelaw added that a shift toward market timing could be dangerous, as very few people were able to foresee the bursting of either the tech or the real estate bubble.
"All the conventional wisdom about investing in equities over the long term didn't work in that time frame, but that is exactly the risk you take with stocks," said Jim Dunigan, PNC Wealth Management's managing executive of investments.
In fact, an investment in government bonds over the past 10 years was the better bet, providing a total return of more than 70 percent, according to the JPMorgan Global Bond Index.
(Reporting by Kristina Cooke; Editing by Jan Paschal)