Some Perspective On The Performance Of The S&P 500 Index

View from the Observation Deck 
  1. Are U.S. stocks overvalued? While there are many metrics that can be used to argue one side or the other, we believe there is room for an eyeball test using historical returns.
  2. The last bar in the chart (shaded gold) represents the average annual total return for the S&P 500 Index since 1926. Since it covers such a long period, it tends to change modestly with each passing year.
  3. Bar #1 (12/89-12/99) is simply extraordinary because it reflects an average annual total return that is way beyond the 1926-2017 historical norm. Performance was enhanced substantially by the Internet Revolution (1995-1999).
  4. Bar #2 (12/99-12/09) reflects the fallout after the internet bubble burst in March 2000. This is your so-called "Lost Decade" in the stock market. 
  5. Bar #3 (12/89-12/09) shows the average annual total return for the two decades captured in Bar #1 and Bar #2. The 8.2% average gain for the 20-year period is below the historical 10.2% average annual return since 1926. So some ground needed to be made up. 
  6. Bar #4 (12/09-12/17) shows the average annual total return for the current decade through the close of 2017. The 13.9% average gain over the period helped make up some of the deficit revealed in bar #3.    
  7. Bar #5 (striped) indicates that while the gap is narrowing, the 9.8% average annual total return still falls short of the 10.2% historical norm from 1926-2017. 

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 is a capitalization-weighted index comprised of 500 stocks (currently 505) used to measure large-cap U.S. stock market performance.

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Posted on Thursday, April 5, 2018 @ 2:39 PM

These posts were 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.