Hoping for mean reversion

If history is anything to go by, while this year was painful for the American equity market, 2009 will be much stronger. Andrew Yeadon, the head of multi-manager at Schroders, pointed to research from Yale University showing that the worst years for American equities are usually followed by some of the best.

Looking at the distribution of American equity returns from 1871 to 2008, with the exceptions of 1931 and 1932, years in which returns fell by 20% or more (1907, 1917, 1930, 1937, 1974, 2002) were all followed by positive returns of more than 20%. However, next year may be different since Schroders’ house call is for a recovery to start at the end of 2009 and start of 2010.

Adam Lewis was a guest of Schroders in New York.