Market Data Bank
S&P 500 RECOVERS STRONGLY AGAIN
Not only did stocks recover fully from the -33.9% COVID bear market, but the S&P 500 broke its the all-time high set before the pandemic. It was the second consecutive quarter of great returns. Facebook, Apple, Amazon, Netflix, Google, and Microsoft accounted for the S&P 500 gains, leading a fearful slog back to normalcy.
U.S. VERSUS FOREIGN STOCKS
In the five years ended Sept. 30, the S&P 500 delivered more than three times the total return of European stocks, and twice as much as Asia Pacific stocks. U.S. outperformance drove a bull market from April 2009 to February 2020, and was followed by the Covid bear market, which bottomed March 23, 2020.
ENERGY WAS WORST SECTOR AGAIN
Energy stocks lost 45% of their value in the year ended Sept. 30, 2020. Pandenomics caused a worldwide recession, worsening the global oil glut. Meanwhile, technology stocks, propelled by FAANGM, blasted 47% higher. Consumer discretionary and tech stocks have outperformed for years.
INDEXES TRACKING 13 ASSET CLASSES
U.S. stock returns crushed a diverse group of assets in the five years ended Sept. 30, 2020. Despite the Covid bear market, U.S. stocks nearly doubled in this period. Notably, the global stock index, excluding U.S. stocks, returned less than half the S&P 500. Gold stocks surged as investors sought stock alternatives.
EQUITY RISK PREMIUM
Over the 22 years and nine months ended Sept. 30, 2020, a risk-free 90-day U.S. Treasury bill averaged +1.88% annually, compared to +7.63% on stocks. That is equal to a +5.75% annual premium for taking the risk of owning stocks through the tech crash of 2000, the 2008 global crisis, and Covid bear market.
WHAT TO EXPECT
One-day stock plunges are not uncommon in recent years. Earlier this year, stocks plunged -12% in a single day! With Covid still causing uncertainty, stock plunges should be expected. But investors who plan to own stocks for the rest of their lives would be wise to view volatility as a way to earn the equity risk premium.
Past performance is never a guarantee of your future results. Indices and ETFs representing asset classes are unmanaged and not recommendations. Foreign investing involves currency and political risk and political instability. Bonds offer a fixed rate of return while stocks fluctuate. Investing in emerging markets involves greater risk than investing in more liquid markets with a longer history.