Ten years ago this month, Lehman Brothers failed, transforming what many at the time viewed as an ordinary recession into the worst downturn in 80 years. Many ramifications of the financial crisis still linger.

For some of the 9 million Americans who found themselves out of work for years, the effects will be permanent. Most employed people did keep their jobs. Yet according to a recent study by the San Francisco Federal Reserve, the average American lost $70,000 in lifetime income, thanks to the Great Recession.

Today, the U.S. alone among developed market economies appears to be exiting the so-called New Normal era of near-zero interest rates, low inflation and anemic growth that characterized the post-crisis years. What the new regime we are entering will look like has yet to crystallize. Many economists believe GDP growth could hit 3.0% this year, topping the 2.9% figure in 2014 as the best year since the recession ended.

Interest Rates Drove Stock Prices

Before figuring out what scenarios might materialize over the next five years, it might be instructive to identify scenarios that are unlikely to occur. According to Versant Capital’s president and chief investment officer, Tom Connelly, one thing is certain. Interest rates can’t fall from 15% to 3% as they have over the last four decades.

That is significant to Connelly, who spent a decade chairing the Arizona State Retirement System’s investment committee. Since August 1982, the S&P 500 has returned an annualized 12.1% with dividends reinvested. Financial economists estimate that at least 40% of the marathon-like bull market run that dominated the adult lives of most advisors and their clients is directly attributable to the secular decline in interest rates.

Where interest rates go from here is a matter of open debate. J.P. Morgan CEO Jamie Dimon recently said the economy will surprise to the upside and send the 10-year Treasury to 5% in the next few years. DoubleLine CEO Jeffrey Gundlach has maintained that a 6% yield on the 10-year bond is well within the realm of possibility.

Loomis Sayles vice chairman Dan Fuss believes the Federal Reserve, left to its own devices, wants to raise interest rates to normalized levels. In normal conditions, he thinks that would take the 10-year bond to the 3.8%-4.0% range and the 30-year bond to about 4.4%.

This scenario assumes the economy remains strong for another six months and then resumes slower growth. Many economists do expect business activity to slow down in 2019 as the effect of the tax cuts wears off.

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