Weekly Market Commentary - The New Normal Was the Old Normal

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.”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.

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.






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


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.



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.