Today the S&P 500 index (considered by most professional investors to be the toughest index to beat) climbed past 5000, a milestone of sorts. To put this into perspective, here is a chart that shows the S&P 500 index from 1950 through today. As the green line indicates, the index (sans dividends) has risen at an annualized rate of about 8% per year. According to Bloomberg, and including reinvested dividends, the annualized total rate of return of an investment in the S&P 500 from Jan. 1950 through today works out to about 11.5%, for a total return of over 300,000%.
Over the same period, the CPI has increased 1,316%, or about 3.5% annualized per year. Roughly speaking, dividends over the past 74 years have offset inflation.
The power of compounding over long periods is truly remarkable.
Chart #1
One of my favorite quotes that I share with young coworkers is from Peter Lynch in the 1980's. The Dow was a little over 1000 at the time. He said, "I have no idea when the Dow will hit 2000, but I know when it will hit 10,000 - that is in your lifetime."
ReplyDeleteYour chart provides the perfect context for my idea that history may be rhyming.
ReplyDelete1) The run-up in Dow/SP500 from 1950 to the late 60's went up ~5-6 fold.
2) That whole period until the mid-60's had virtually no inflation and very low int. rates. Then, by 1971 inflation went up high enough (a whopping 5%!) for Nixon to implement "Wage and Price Controls".
3) Starting in 1966 the Dow experienced a few cyclical bear and bull markets, never getting much higher than the 1966 peak, and finally enduring a secular bear in 1973-4, down 50%.
4) The late 60's to early 70's period was what became known as the "Nifty Fifty" era, where a small group of hyper-growth stocks kept leading the indexes higher while the majority of stocks did much less well.
Fast forward to the 2009-2022 Dow run-up of 5-6 fold followed by (so far) a cyclical bear then bull market, led by the Mag 7, and a decade+ of no inflation and 0% rates pre-Covid.
It all sounds eerily similar to me.
Scott - I'm in Kaanapali for a few weeks and had a chance to see first-hand the damage from the Lahaina fires. Another example of how government is not the answer. I went to Napili to the Sea House restaurant and realized my wife and I honeymooned their 28 years ago!
ReplyDeleteScott,
ReplyDeleteExcellent WSJ artitle that breaks down January CPI report by sector. I was surprised to see the Owner's Equivalent Rent category only going down from 6.3% in December to 6.2% in January. Seems like that would be declining at a more rapid rate given the data in your December posts.
Any thoughts on this would be welcome - thanks!
Tom
Well done. More reason to be optimistic about the tone of the market. WHile AI whackos worry about weakness in the magnificent seven, the AD line continues to march higher.
ReplyDelete