Friday, February 9, 2024

S&P 500 @ 5000

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


Junkyard_hawg1985 said...

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."

pgrommit said...

Your chart provides the perfect context for my idea that history may be rhyming.

1) 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.

Buy Low then Sell High said...

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!

Unknown said...


Excellent 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!