Oct. 7 (Bloomberg) -- Slightly more than four years in the future lurks an unfamiliar peril for the U.S. stock market.

It's the very real possibility that the market indexes will finish the decade of the 2000s, counting from the end of 1999 through the end of 2009, with a loss.

More than halfway through the Double-0s -- five and three- quarters years, to be exact, as of the end of September -- the index tables are dotted with minus signs. The Standard & Poor's 500 Index is down 1.5 percent a year, including dividends, and the Nasdaq Composite Index shows an annualized loss of 10.1 percent.

So to reach the ignominious outcome of a declining decade, these indexes don't have to do anything special -- just stay right about where they are.

How unusual would this be? You have to go back to the 1930s to find the last stretch of 10 calendar years in which the S&P 500 posted a loss.

The nearest thing in modern times came from the end of 1964 through 1974, when the S&P 500 scratched out a 1.2 percent annual gain including dividends, and the Dow Jones Industrial Average rose a mere 0.3 percent a year (the Nasdaq Composite didn't come into existence until 1971). Without dividends, both the S&P 500 and the Dow would have posted losses -- a bit of information which nicely bolsters the argument for never sneering at dividends.

Scraping Bottom

The 1964-74 period stands out because its end almost exactly coincided with the bottom of a severe two-year bear market. A more recent period, 1992-2002, also ended right around the bottom of a multiyear decline. But the stock market was so strong in the 1990s that the S&P 500 still emerged from the 10 years ended in '02 with an annualized gain of 9.3 percent, or close to its historic average return.

Ah, the long-term average, otherwise known as the mean. If stock-market indicators, like so many other statistical series, naturally tend to revert toward the mean, don't we have a pretty good mathematical case for a healthier market between now and the end of the '00s?

Sure seems that way. If modern capitalist economies have a built-in propensity to grow, the odds get steeper and steeper against a net decline for the stock indexes as the time periods we are looking at lengthen.

``Unless the principle of reversion to the mean is repealed, it's doubtful that stocks will end the decade with a loss,'' says Chris McHugh, a fund manager who helps oversee $15.6 billion at Turner Investment Partners in Berwyn, Pennsylvania.

Probable Cause

``Of course a loss can't be entirely ruled out,'' McHugh says in a commentary in Turner's quarterly newsletter. ``Nevertheless, since sound investing is based on probabilities, we think the likelihood is that stocks should perform at least reasonably well going forward to produce a positive return for the 2000s.''

What makes the echoes of the 1930s ring so strange in the markets now is the vastly different state of the world economy, which is suffering nothing like the severe troubles of those bad old days. U.S. unemployment is about 5 percent, not 25 percent, and much of the world is enjoying moderate to strong growth without a Depression in sight.

One big problem for the '00s is a matter of timing. Nothing biases a stock chart downward quite like a super-high starting point, which is precisely what the S&P 500 and other market indexes were saddled with as they embarked on the '00s.

Waiting Game

The S&P 500 had climbed 17.6 percent a year, or almost twice its presumed normal pace, through the 1980s and 1990s, prompting the reversion-to-the-mean crowd to protest that the bull market had gone beyond all reasonable bounds. Eventually, they were proved right.

By the same logic, a decade of poor performance now might strike the reversionists as a buying opportunity. Before acting on that thought, though, it's instructive to consider how events unfolded after the 1964-74 period.

While the end of 1974 can indeed be seen in retrospect as a prime buying opportunity, the next bull market didn't get going in earnest until the early 1980s. Playing the mean-reversion game in the markets can require a heap of patience.

To contact the writer of this column: Chet Currier in New York at ccurrier@bloomberg.net.

Last Updated: October 7, 2005 00:09 EDT