A lost decade for stocks. Will next one be better?

For longtime stockholders, our condolences. The recent run-up in US markets may make it feel like a happy New Year, but it's not really. Stocks have only partially recovered from the fiercest bear-market in generations. By any long-term measure, this is the worst decade for stocks since the 1930s.

By one measure, it's even worse. Will the next decade be any better?

One comforting thought is that it can't be much worse. With two trading days left in 2009, the Standard & Poor's 500 index lost an average 2.6 percent a year during the 2000s, the most dismal performance since the Great Depression. Counting dividends, they still lost nearly 1 percent a year. Even Depression-era investors did better than that (click on the chart at left).

Those results have shaken investors' confidence that stocks provide the best returns in the long term.

To be sure, there have been worse 10-year periods in stocks that don't fall neatly into a single decade. And yes, 2009 isn't technically the end of the decade, 2010 is. But for those of us who think in terms of the 1930s, the '40s, and so on, this marks the end of the period.

In some ways, the 2000s look worse than they actually were because they started off with the popping of the technology bubble and ended with the far broader decline of the "great recession." Investors who made the right moves at the right time profited handsomely. Those who didn't suffered perhaps the worst returns in their lives.

In the next decade, investors will also have to be wary because some of the tail winds that propelled stocks during the 1980s, '90s, and part of this decade have become head winds that will make investing more difficult.

"It's a decade where we're going to have to be more dextrous," says Michael Ryan, head of wealth-management research in the Americas for UBS, a Swiss-based financial-services firm. "Going forward it's going to be a lot more volatile."

Here are three trends to watch for in the teen years of the 21st century:

1. US/China consumer switch. Americans are starting to act more like the Chinese. They're saving more and buying less in a deleveraging process that will last well into the next decade, says Christian Menegatti, head of global economic research at Roubini Global Economics, an economic-research firm in New York. In the 1990s, Americans' total consumption rose an average 3.6 percent a year; in the next decade, growth will be closer to 2 percent, he predicts.

Since China and the rest of the developing world will no longer be able to rely on American consumers to buy their products, they'll have to encourage their own residents to become more like Americans, saving less and buying more. This will be a big policy change for developing economies, so it may not go smoothly, providing repeated hiccups for investors. But it's the only way for these nations to sustain their growth in the long term and will lead to more balanced world growth, Mr. Ryan says.

2. US government's expanding role. The financial crisis and great recession changed the US policy landscape. The era of smaller government and less regulation that boosted stocks for much of the last three decades has given way to an era of more government intervention. This may affect certain industries, such as banking and healthcare. It has already burdened taxpayers with dramatically more debt. Paying off that debt with higher taxes will prove to be a drag on growth as the next decade progresses.

3. Unwinding the fiscal stimulus. Once the private sector stabilizes, governments and central banks will have to withdraw the extraordinary amounts of money they injected into the financial system. If they time it right, then they could usher in a period of relative stability in which emerging market nations would see the highest returns, Mr. Menegatti says. If authorities get the timing wrong, then various economies, especially the emerging markets, could experience asset bubbles leading to another boom-bust cycle. In that case, safe but sluggish US markets would be the place to put one's money, he adds.

"I don't think the US will be better than before the crisis," Menegatti says. "The next decade is going to be very sluggish."

Of course, projections looking out an entire decade are difficult. In late 1979, America's prospects in the 1980s looked bleak, what with high inflation, limited resources, and declining world influence, Ryan says. Instead, "the '80s were where the US became the ascendant economy globally."

So the future for stocks isn't already baked in. What happens in the next 10 years will depend very much on actions that the US and the world have yet to take.