Weekly Market Commentary - Northstar Wealth Partners
LP L FINANCIAL R E S E AR C H
Weekly Market Commentary October 28, 2013
The New Normal Was the Old Normal Five years ago, the phrase “the new normal” began to be coined to describe the investment environment of the years that were to follow. Prognosticators claimed the new normal of the future was likely to include a lowered living standard, high unemployment, stagnant corporate profits, heavy government intervention in the economy, and disappointing stock market returns.
Jeffrey Kleintop, CFA Chief Market Strategist LPL Financial
Highlights Stock market returns have been remarkably average — producing double-digit total returns over the past one-, three-, and fiveyear periods — far from the disappointment promised by “the new normal.”
While certainly job growth has been sluggish and government intervention intense, how has the new normal been for investors? As it turns out — a lot like the old normal. In fact, over the past one-, three-, and five-year periods total returns for the S&P 500 were very average. While the year is not over yet, if it were to end with Friday’s (October 25, 2013) year-to-date total return of 24.9%, it would be a very typical year for the stock market. The annual total return of 20 – 25% this year is the second most common outcome for the stock market since records for the S&P 500 began in 1927. In fact, were it not for the recent gains in 2010 and 2012 boosting the number of occurrences that returns fell in the 15 – 20% range, the 20 – 25% range would be tied for the most common annual outcome for the stock market.
1 2013 Has Been a Very Typical Year for Stocks S&P 500 Annual Total Return 1927-2013*
1928 1958
+30% to +35%
+35% to +40%
+40% to +45%
1935
1933 1954 >+50%
1927 1995 1975 1945
+45% to +50%
2003 1998 1961 2009 1943
1936 1997 1980 1985 1950 1955 1989 1938 1991
+25% to +30%
1971 1965 1959 1968 2004 1993
2013* 1951 1967 1976 1996 1963 1983 1982 1999 1942 +20% to +25%
1992 1978 1956 1984 1947 1948 2007 1987
1944 1972 1949 1986 1979 1952 1988 1964 2012 2006 2010 +15% to +20%
2005 1970 2011 1994 1960
2010s
+10% to +15%
1939 1953 1934 1990 1981
2000s
+5% to +10%
1990s
0% to +5%
1980s
-5% to 0%
1966 1957 1941 2001 1973
1977 1946 1932 1929 1969 1962 2000 1940 -10% to -5%
2002
1970s
-15% to -10%
1930 1974
1960s
-20% to -15%
1937
-25% to -20%
1950s
-30% to -25%
< -35%
2008 1931
1940s
-35% to -30%
1930s
Source: LPL Financial Research,Ibbotson Associates data, Bloomberg data 10/28/13 *2013 Year-to-Date Total Return Through 10/25/13 Past performance is no guarantee of future results.
Member FINRA/SIPC Page 1 of 4
W E E KLY MARKE T CO MME N TAR Y
2 The Past Three Years for Stocks Were Nothing Unusual S&P 500 Annualized Three-Year Total Return 1927-2013*
1947 1949 1964 1937 2007 1969 1967 1976 1968 1987 1978 1994 1940 1966 1979 1962 1973
1946 2005 1981 1990 2011 2013* 1988 1953 1959 1961 1963 2000 1972 1983 1934 1958 2012 1992 2006 1943
1985 1996 1980 1986 1991 1950 1987 1989 1960 1965 1984 1977 1993 1995 1982
1936 1951 1952 1944 1929 1954
1956 1998 1999 1945 1955
1997 1935
+25% to +30%
+30% to +35%
2010s
+20% to +25%
1938 2004 1971 1970 1948
2000s
+15% to +20%
1930 2001 1942 2010 2003 1975
1990s
+10% to +15%
2002
1939 2009 1933 1941 2008 1974
1980s
+5% to +10%
1970s
0% to +5%
1960s
-5% to 0%
-20% to -15%
-25% to -20%
-30% to -25%
1932 1931
1950s
-10% to -5%
1940s
1930s
-15% to -10%
The S&P 500 is an unmanaged index which cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Source: LPL Financial Research,Ibbotson Associates data, Bloomberg data 10/28/13 *2013 Total Return from 1/1/11 Through 10/25/13 Past performance is no guarantee of future results.
Despite what some may fear as an outsized gain in the stock market during 2013, surely to be punished with losses in the coming year, looking forward after a one year total return in the 20 – 25% range, the S&P 500 has usually followed up with more years of solid gains. In fact, the average return in a year following a 20 – 25% gain was 13.7% and was positive in seven of the nine occurrences (the exceptions were 1976’s gain of 23.8%, which was followed by a loss of 7.2% in 1977, and 1999’s gain of 21.0%, which was followed by a loss of 9.1% in 2000). In fact, such years often marked the start of several years of strong gains, as was the case in 1942, 1963, 1982, and 1996. Similarly, the past three years’ annualized return for the S&P 500 falls within the most common 10 – 15% range. Whether measured over the past five years, from 10/25/08 to 10/25/13, or like the other periods, from the end of 2008 until now, the total return falls into the slightly above average, but still very common, 15 – 20% range. Sometimes it helps to look back when trying to look forward. Stock market returns have been remarkably average over the “new normal” period and not very disappointing at all. We may have another year of normal ahead of us. After all, every period has its major events and new challenges and
LPL Financial Member FINRA/SIPC
Page 2 of 4
W E E KLY MARKE T CO MME N TAR Y
3 The Past Five Years for Stocks
1970s
1980s
1990s
2000s
1950 1963 1960 1994 1971 1981 1944 1972 2006 1966 1969
1947 1979 1984 1985 1993 1937 1982 1980 1957 1962 1965 1990 2007 1961 1967 1939 1948 1964 2001 1949 1938 1968
1986 1952 2000 1946 1953 1983 1945 1951 2013* 1995 1987 1992 1988 1991 1996 1959
1998 1954 1955 1936 1958 1989 1997 1956
2010s
1999 +25% to +30%
-10% to -5%
0% to +5%
1931 1941 1934
1977 2011 2003 2002 2008 2004 1974
1976 1942 1978 1943 1970 1975 1935 2010 1973 2012 2005 1940 2009
-5% to 0%
1933 1932 -15% to -10%
We face challenges ahead and new trends will emerge, but we can take some comfort that it takes a lot to result in a major departure from history for the stock market.
1960s
+20% to +25%
1950s
+15% to +20%
1940s
+10% to +15%
1930s
+5% to +10%
S&P 500 Annualized Five-Year Total Return 1927-2013*
Source: LPL Financial Research,Ibbotson Associates data, Bloomberg data 10/28/13 *2013 Total Return from 1/1/09 through 10/25/13 Past performance is no guarantee of future results.
can seem “different this time” (Federal Reserve actions, government debt levels, inflation, oil prices, military actions, etc.). History shows that although there are differences, the people that make up the businesses, policymakers, and markets adapt to the environment and find innovative and flexible ways to thrive. We face challenges ahead and new trends will emerge, but we can take some comfort that it takes a lot to result in a major departure from history for the stock market. n
LPL Financial Member FINRA/SIPC
Page 3 of 4
W E E KLY MARKE T CO MME N TAR Y
IMPORTANT DISCLOSURES The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Stock investing involves risk including loss of principal. INDEX DESCRIPTIONS The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This research material has been prepared by LPL Financial. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity. Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Member FINRA/SIPC Page 4 of 4 RES 4375 1013 Tracking #1-216534 (Exp. 10/14)
Weekly Market Commentary October 28, 2013
The New Normal Was the Old Normal Five years ago, the phrase “the new normal” began to be coined to describe the investment environment of the years that were to follow. Prognosticators claimed the new normal of the future was likely to include a lowered living standard, high unemployment, stagnant corporate profits, heavy government intervention in the economy, and disappointing stock market returns.
Jeffrey Kleintop, CFA Chief Market Strategist LPL Financial
Highlights Stock market returns have been remarkably average — producing double-digit total returns over the past one-, three-, and fiveyear periods — far from the disappointment promised by “the new normal.”
While certainly job growth has been sluggish and government intervention intense, how has the new normal been for investors? As it turns out — a lot like the old normal. In fact, over the past one-, three-, and five-year periods total returns for the S&P 500 were very average. While the year is not over yet, if it were to end with Friday’s (October 25, 2013) year-to-date total return of 24.9%, it would be a very typical year for the stock market. The annual total return of 20 – 25% this year is the second most common outcome for the stock market since records for the S&P 500 began in 1927. In fact, were it not for the recent gains in 2010 and 2012 boosting the number of occurrences that returns fell in the 15 – 20% range, the 20 – 25% range would be tied for the most common annual outcome for the stock market.
1 2013 Has Been a Very Typical Year for Stocks S&P 500 Annual Total Return 1927-2013*
1928 1958
+30% to +35%
+35% to +40%
+40% to +45%
1935
1933 1954 >+50%
1927 1995 1975 1945
+45% to +50%
2003 1998 1961 2009 1943
1936 1997 1980 1985 1950 1955 1989 1938 1991
+25% to +30%
1971 1965 1959 1968 2004 1993
2013* 1951 1967 1976 1996 1963 1983 1982 1999 1942 +20% to +25%
1992 1978 1956 1984 1947 1948 2007 1987
1944 1972 1949 1986 1979 1952 1988 1964 2012 2006 2010 +15% to +20%
2005 1970 2011 1994 1960
2010s
+10% to +15%
1939 1953 1934 1990 1981
2000s
+5% to +10%
1990s
0% to +5%
1980s
-5% to 0%
1966 1957 1941 2001 1973
1977 1946 1932 1929 1969 1962 2000 1940 -10% to -5%
2002
1970s
-15% to -10%
1930 1974
1960s
-20% to -15%
1937
-25% to -20%
1950s
-30% to -25%
< -35%
2008 1931
1940s
-35% to -30%
1930s
Source: LPL Financial Research,Ibbotson Associates data, Bloomberg data 10/28/13 *2013 Year-to-Date Total Return Through 10/25/13 Past performance is no guarantee of future results.
Member FINRA/SIPC Page 1 of 4
W E E KLY MARKE T CO MME N TAR Y
2 The Past Three Years for Stocks Were Nothing Unusual S&P 500 Annualized Three-Year Total Return 1927-2013*
1947 1949 1964 1937 2007 1969 1967 1976 1968 1987 1978 1994 1940 1966 1979 1962 1973
1946 2005 1981 1990 2011 2013* 1988 1953 1959 1961 1963 2000 1972 1983 1934 1958 2012 1992 2006 1943
1985 1996 1980 1986 1991 1950 1987 1989 1960 1965 1984 1977 1993 1995 1982
1936 1951 1952 1944 1929 1954
1956 1998 1999 1945 1955
1997 1935
+25% to +30%
+30% to +35%
2010s
+20% to +25%
1938 2004 1971 1970 1948
2000s
+15% to +20%
1930 2001 1942 2010 2003 1975
1990s
+10% to +15%
2002
1939 2009 1933 1941 2008 1974
1980s
+5% to +10%
1970s
0% to +5%
1960s
-5% to 0%
-20% to -15%
-25% to -20%
-30% to -25%
1932 1931
1950s
-10% to -5%
1940s
1930s
-15% to -10%
The S&P 500 is an unmanaged index which cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Source: LPL Financial Research,Ibbotson Associates data, Bloomberg data 10/28/13 *2013 Total Return from 1/1/11 Through 10/25/13 Past performance is no guarantee of future results.
Despite what some may fear as an outsized gain in the stock market during 2013, surely to be punished with losses in the coming year, looking forward after a one year total return in the 20 – 25% range, the S&P 500 has usually followed up with more years of solid gains. In fact, the average return in a year following a 20 – 25% gain was 13.7% and was positive in seven of the nine occurrences (the exceptions were 1976’s gain of 23.8%, which was followed by a loss of 7.2% in 1977, and 1999’s gain of 21.0%, which was followed by a loss of 9.1% in 2000). In fact, such years often marked the start of several years of strong gains, as was the case in 1942, 1963, 1982, and 1996. Similarly, the past three years’ annualized return for the S&P 500 falls within the most common 10 – 15% range. Whether measured over the past five years, from 10/25/08 to 10/25/13, or like the other periods, from the end of 2008 until now, the total return falls into the slightly above average, but still very common, 15 – 20% range. Sometimes it helps to look back when trying to look forward. Stock market returns have been remarkably average over the “new normal” period and not very disappointing at all. We may have another year of normal ahead of us. After all, every period has its major events and new challenges and
LPL Financial Member FINRA/SIPC
Page 2 of 4
W E E KLY MARKE T CO MME N TAR Y
3 The Past Five Years for Stocks
1970s
1980s
1990s
2000s
1950 1963 1960 1994 1971 1981 1944 1972 2006 1966 1969
1947 1979 1984 1985 1993 1937 1982 1980 1957 1962 1965 1990 2007 1961 1967 1939 1948 1964 2001 1949 1938 1968
1986 1952 2000 1946 1953 1983 1945 1951 2013* 1995 1987 1992 1988 1991 1996 1959
1998 1954 1955 1936 1958 1989 1997 1956
2010s
1999 +25% to +30%
-10% to -5%
0% to +5%
1931 1941 1934
1977 2011 2003 2002 2008 2004 1974
1976 1942 1978 1943 1970 1975 1935 2010 1973 2012 2005 1940 2009
-5% to 0%
1933 1932 -15% to -10%
We face challenges ahead and new trends will emerge, but we can take some comfort that it takes a lot to result in a major departure from history for the stock market.
1960s
+20% to +25%
1950s
+15% to +20%
1940s
+10% to +15%
1930s
+5% to +10%
S&P 500 Annualized Five-Year Total Return 1927-2013*
Source: LPL Financial Research,Ibbotson Associates data, Bloomberg data 10/28/13 *2013 Total Return from 1/1/09 through 10/25/13 Past performance is no guarantee of future results.
can seem “different this time” (Federal Reserve actions, government debt levels, inflation, oil prices, military actions, etc.). History shows that although there are differences, the people that make up the businesses, policymakers, and markets adapt to the environment and find innovative and flexible ways to thrive. We face challenges ahead and new trends will emerge, but we can take some comfort that it takes a lot to result in a major departure from history for the stock market. n
LPL Financial Member FINRA/SIPC
Page 3 of 4
W E E KLY MARKE T CO MME N TAR Y
IMPORTANT DISCLOSURES The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Stock investing involves risk including loss of principal. INDEX DESCRIPTIONS The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This research material has been prepared by LPL Financial. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity. Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Member FINRA/SIPC Page 4 of 4 RES 4375 1013 Tracking #1-216534 (Exp. 10/14)
