Are We Over 2000?
Barely. And with a tremendously rocky ride.
Spurred by the most recent weekly piece by John Hussman (hussmanfunds.com), I checked the yearly and cumulative nominal total return figures for the S&P 500 and a few US Government bond indices since 2000. The results can be found in the table below (data from December 31 1999 to February 27 2015):
Annual Return | Cumulative Return | |
S&P 500 Total Return | 4.4% | 91.3% |
US Government 1-3 Years | 3.4% | 64.9% |
US Government 3-5 Years | 4.9% | 107.7% |
US Government 5-7 Years | 5.9% | 138.8% |
US Government 7-10 Years | 6.5% | 160.1% |
US Government 10+ Years | 8.5% | 243.0% |
US Government All >1 Year | 5.5% | 126.5% |
Source: Bloomberg; Bloomberg/EFFAS US fixed income indices.
Apart from the shortest maturity bucket, all Government maturities provided a better return than large-cap equities; in the case of the longest bond maturities – arguably the only ones comparable to equities in terms of price risk and duration – substantially better.
During the period in question, the S&P had two negative runs of about 50% each: one, of -47.4%, from September 2000 to October 2002; another, of -55.3%, from October 2007 to March 2009. Remember: these are nominal total return figures, which include dividends (reinvested immediately in the index) but not the impact of inflation.
As Hussman points out, the performance of the S&P has been achieved only because current prices have reached valuations that represent the second most expensive level historically recorded. The following graph is taken from a recent publication of Doug Short (dshort.com). While it certainly does not provide a trading signal or an indication that prices will soon revert to more acceptable levels, it does warn of likely very low returns for equities over the next 5-10 years. That is, if you can keep still while the ride evolves and/or if you have the ability to pick tops and bottoms – two very big “ifs”.
Source: dshort.com.
Photo source: http://fineartamerica.com.