View from the Observation Deck
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Today's blog post features the cumulative total return performance of five major equity indices (three domestic and two foreign) since the start of 2000.
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We chose to highlight rolling 5-year periods because equity investors have endured two severe and lengthy bear markets (20% or more price decline from recent peak) since the start of 2000, and we came very close to registering a third one in Q4'18. Investors have also weathered a significant number of challenging global events since 2000.
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We also like to occasionally remind investors that the buy and hold strategy can still serve them well over time.
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The two bear markets in stocks ran from 3/24/00 through 10/9/02 and from 10/9/07 through 3/9/09, as measured by the S&P 500 Index. The S&P 500 Index posted total returns of -47.38% and -55.25%, respectively, according to Bloomberg. In Q4'18, the S&P 500 Index declined 19.36% on a total return basis from its all-time high set on 9/20/18 through the low for the quarter on 12/24/18. It never declined by 20% on a closing basis.
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Here are just a few of the challenging global events we alluded to: 9/11 terrorist attacks in U.S. (2001); Invasion of Iraq/2nd Gulf War (2003); U.S./Global financial crisis (2008-2009); Greek debt crisis (2009); U.S. stock market flash crash (2010); Japan's tsunami/9.0 earthquake (2011); the UK's decision (Brexit vote) to leave the European Union (2016); and an escalating trade conflict between the U.S. and China (2018).
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Emerging markets equities clearly performed the best in the first decade covered in the table but have underperformed the U.S. indices markedly in the current decade.
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Mid- and small-capitalization (cap) stocks in the U.S. have performed the best in the current decade, but also performed relatively well in the first decade.
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Points 6 and 7 indicate that investors have been willing to assume some additional risk, by favoring emerging markets, small-cap and mid-cap stocks, despite the negative events occurring around the globe, in our opinion.
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From 12/31/99-12/31/18, the average annual total returns for the five equity indices were as follows (not shown in table): 4.86% (S&P 500); 8.67% (S&P MidCap 400); 9.15% (S&P SmallCap 600); 2.54% (MSCI Daily TR Net World ex-U.S. in USD); and 6.10% (MSCI Daily TR Net Emerging Markets in USD), according to Bloomberg.
This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the U.S. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
Posted on Tuesday, January 8, 2019 @ 2:13 PM
Posts are prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.