Average Stock Market Return

Before we define the average stock market return, let us first understand what stock market return is.

As the term suggests, the stock market returns are essentially the returns that investors will generate when they invest in the stock market. Usually, these returns will be in the form of trading profits or paid-out dividends the company will give to its shareholders when they buy out the company stock.

However, the most popular system of generating stock returns is through secondary market trading. Essentially, investors will purchase stocks at their lowest price, wait for the price to shoot up then sell out the stocks, thereby making a profit. You notice that trading in the secondary market works through speculations and anticipation.

Through technical analysis and fundamental scrutiny, the investor will try to figure out whether the stock prices will rise. As such, stock trading is usually attached to risks as investors could witness negative returns.

Average Stock Market Return

The Average Stock Market Return has been roughly 10% since the late 1920s. Because of this, the 10% rate has widely been used as a benchmark for evaluating long-term equity investments' performance. Benchmarks often referred to as the rules of the thumbs are vital elements in financial investments because they show investors whether or not they are on track.

Stock markets are also characterized by volatility which makes the stock market rates variations a common thing. For instance, the past decade has seen some of the best rates in the stock markets. Between 2011 and date, the average stock market return was 13.8% for the S&P 500 Index. So it would be correct to say that it was a fruitful decade for investors.

But why these fluctuations? What are some of the factors that cause the stock return rates to fluctuate? In the following segment, we will see some of the key contributors to stock rates fluctuations.

Factors that Affect Stock Markets

As already mentioned earlier, investing in stock markets is a profitable yet risky decision. You never know when the prices will go down. You are probably wondering what factors cause the stock prices to go up or go down.

1. Current Events

A perfect example of a current event that significantly impacted the average stock market return is the Covid-19 pandemic. The pandemic had a two-way impact on the stock market. Whereas pandemic-related factors caused the stocks to soar to greater heights, there are also covid-related factors that caused the stock prices to drop at an alarming rate.

For instance, the stocks for airlines, cruise lines, and the healthcare industry experienced negative impacts, especially in China and globally. Check out the graph below to see how the stocks dropped in China.

On the other hand, the stocks for tech companies that responded to the pandemic by providing viable solutions such as video conferencing, online shopping, etc., saw their stock prices grow. A perfect example of companies that witnessed stock growth is Netflix and Amazon stocks.

Although the Covid-19 pandemic created a dramatic stock fluctuation situation, most factors that have impacted stock prices have remained the same for years.

1. Economics of Demand and Supply

Many factors affect stock prices. However, if you strip all the factors down, you will notice that they all point to one factor- the economics of demand and supply. Like all commodities, any imbalance between demand and supply will significantly impact the prices of stocks. For example, say there is a shortage of sugar on the market, people will rush to buy the little sugar available, which will cause the suppliers to increase sugar prices.

Similarly, if a corporate is doing so well on the market, everyone would want to buy the stocks of that company. As a result, there will be a stock shortage of the company, which will cause the stock's value to shoot up. Of course, the reverse also holds.

The graph above illustrates how the demand and supply of stock affect its prices. As stock demand increases, so does the price.

1. Company Internal Factors

There is no doubt that once a company is on the stock market, any happening within the industry will significantly impact the company's stock prices. So, if the company is experiencing a boom (increased revenues, low debts, successful product launches, etc.), then the company's stock prices are bound to increase.

On the other hand, increased company losses, increased debts, failed brand image, etc., could lead to a drop in stock prices.

Other unforeseen circumstances with the company can also negatively impact the stock prices. For instance, the death of a CEO could lead to a drop in stock prices. For instance, the death of Steven Appleton, CEO of Micron Technology, led to a -2.830% return on the first trading day after his death.

2. Investor Sentiments

Investor sentiments also have a significant impact on stock prices. The performance of stock markets is greatly impacted by how investors are putting in money. If investors are aggressive enough to take greater risks, the stock prices are likely to shoot up. On the other hand, more passive investors who take fewer risks will most definitely come down. The former market is commonly referred to as the Bullish market, whereas the latter is the bearish market.

3. Political Factors

The political climate of a country is one of the most crucial factors that affect stock prices. A dire political environment, war, election violence, etc., could lead to a drop in stock prices.

On the other hand, if the government appears strong, with strong public support, then the stock prices are bound to increase.

4. Exchange Rates

How a given currency of a country stands against other foreign currencies also impacts stock prices. A strong currency implies that the economy is stable, which will lead to an increase in stock prices. On the other hand, an unstable foreign currency implies that the economy is unstable, which might lead to an increase in stock prices.

5. Natural Calamities

Natural calamities such as floods, earthquakes, drought, and wildfires could lead to a drop in stock prices.

Measuring Growth In Stock Market

When investing in stock, it is vital to take a long term view. People usually invest in stock to fund their retirement, fund their children's education, and gain long-term financial stability. For this reason, it is vital that you analyze the stock market growth over the past few years to have a clear picture of the true market rate of return.

To determine the average stock market return, you will have to look at the indexes such as the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite. The S&P 500 is the most popular index because it has the most publicly traded companies.  Such indexes provide past data that can be analyzed to predict futures stock trends. The data can also be used to determine the variable that might affect future prices.

The Average Market return For The Last 10, 20, and 30 Years


Annualized Return

Annualized Real Return (inflation-adjusted)

10 years (2011-2020)



20 years (2001-2020)



30 years (1991-2020)



The above schedule shows how stock prices have performed averagely over given periods. Although the figures can not accurately predict the future performance of stock prices, they accurately give us a sense of what the stocks are likely to perform in future.

S&P 500 Average Stock Returns

The S&P 500 index includes over 500 of America's publicly traded companies. As a result, many experts consider the index as a benchmark determinant of annual returns. Usually, when investors mention "the market", they refer to the S&P 500.

Please note that the 10% rate is only the "headline value." The rate is usually impacted by inflation and other factors mentioned above.

Companies on the S&P 500 are chosen based on various factors such as size and liquidity. Overally, the S&P 500 accounts for over 75% of the entire stock market.

Key Takeaways for Making Money on Stock Markets

1. Temper your enthusiasm during every bull market cycle. Things will more likely come down in future.

2. Have more hope when things are looking bad. They won't remain that way forever. How about some celebration during a down market? It is an opportunity for you to purchase more stock at low prices and sell them when things get on track.

3. Patience, patience, patience! The stock market calls that you be more patient. Trading in and out of the market more frequently will not work out for you. The best idea is to but stock and wait as the stock accrues.