The stock market started to generate above-norm rates of return in 1982. Specifically, the S&P 500 has produced a 12.2% annualized rate of return since 1982 compared to 9.1% during the 1926-1981 period. Two reasons can be cited for the elevated returns; technology and globalization.
In 1975, 83% of S&P 500 company assets consisted of tangible properties while 17% were intangible assets including intellectual properties. The word “tech” was not widely used back then. For example, the five major mainframe companies referred to as the BUNCH companies (Burroughs, Univac, NCR, Control Data, Honeywell) were commonly called manufacturing companies and not tech companies.
At this time, the US economy was mostly geared to the domestic market. Most S&P 500 companies did not report foreign sales back then because they were an insignificant part of total sales.
By 2025, a profound shift had occurred as S&P 500 company tangible assets had shrunk to just 8% with intangible assets jumping to a staggering 92%. It is easier for companies to make adjustments to economic conditions today than yesteryear. For instance, it is easier to reduce headcount to bring sales and profits into alignment than to get rid of surplus tractors which took much longer in the economy of 50 years ago.
The global markets offer a marketing opportunity that is about 4x greater than our domestic market. Coming from a nascent base in 1975, foreign sales for S&P 500 companies now represent about 41% of total sales which translated into faster sales and profits growth rates.
The dramatic transition from tangible assets to intangible assets over the years has profoundly reshaped business cycles for the better. Economic expansions have grown in duration from less than 4 years prior to 1982 to nearly 9 years after 1982. This has not gone unnoticed by the stock market as the S&P 500 has produced a higher than norm annualized rate of return of 12.2% since then.
The world is now in the midst of the so-called 4th Industrial Revolution which has been spearheaded by the arrival of Apple, Microsoft, Amazon, Nvidia, and Google, in part. These companies and others like them have not only accelerated overall sales and profits growth rates but also have broadened the number of goods and services which are delivered faster than ever before.
The second stage of the 4th Industrial Revolution is about to center around artificial intelligence driven by soon to come public companies including Space X, Anthropic, Open AI, and Databricks. Given this surge of continuing technological innovation, prospects for strong stock market returns appear to be as bright as those that have been recorded since 1982.
