It was 1999, the topic of conversation was how the Y2K bug would affect companies, the NASDAQ hitting new highs, and the West Nile Virus first appearing in the U.S. Today we still have computer bugs that more frighteningly look to steal our identity. The NASDAQ is yet to reach its all-time highs, but is at the highest level since 2000. And the Ebola virus talk in the media seems to have slowed, as the news cycle moves on to its next headline focus for the next 3 to 6 weeks.
Over the years we have seen ups and downs in markets both domestically and abroad. Rather than look at them year by year, the below sheet breaks down 3 separate 5-year calendar periods, all ending in October (2004, 2009, and 2014 respectively) since it is the latest full month of data we have.
In 1999, not many people expected the next five years to bring -2.22% annual returns to the S&P 500, let alone -7.85% returns for large cap growth stocks (as measured by the Russell 1000 Growth). Likewise few would believe REITs would lead the way from 1999 – 2004, more than doubling with 20.83% annual returns.
Beginning in 2004, institutions really became interested in commodities and index like products. Since 2004 though, the two sets of 5-year returns for the Dow AIG Commodity Index average out to -1.28% annually.
Shifting forward to October 2009, U.S. equity indices were barely positive over the trailing 5-year period due to the 2008-09 bear market. International markets held up well and emerging markets crushed returns as China and others stimulated their economies. Few would predict that the following five years, U.S. markets would take the lead followed by international and lastly, emerging markets.
Fixed Income returns were a little better than starting yields as interest rates fell in each of the five-year periods. For example, municipal bonds returned 7.19%, 4.15%, and 5.26% annualized in the five-year periods ending in 2004, 2009, and 2014.
Why take a look at data this way? As we discussed back in January, many allocation decisions are made looking backward at returns rather than forward, using valuations as a starting point. This often leads to performance chasing and avoidance of opportunities. Of course, 1999 was a peak in the domestic stock market and a trough in 2009, with many areas of the globe offering opportunity in between. It will be interesting to see how the asset class hues shake out for the 2019 column.
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This material is based on public information as of the specified date, and may be stale thereafter. We make no representation or warranty with respect to the accuracy or completeness of this material. Aurum Wealth Management Group and/or Aurum Advisory Services has no obligation to provide updated information on the securities or information mentioned herein. Actual events may differ from those assumed and changes to any assumptions may have a material impact on any projections or estimates. Other events not taken into account may occur and may significantly affect the projections or estimates. Certain assumptions may have been made for modeling purposes only to simplify the presentation and/or calculation of any projections or estimates, and Aurum Wealth Management Group and/or Aurum Advisory Services does not represent that any such assumptions will reflect actual future events. Accordingly, there can be no assurance that estimated returns or projections will be realized or that actual returns or performance results will not materially differ from those estimated herein. This material should not be viewed as advice or recommendations with respect to asset allocation, any particular investment, or any tax advice.