Articles tagged with: investors

Terrorism & the Financial Markets

Wall Street has the potential to recover quickly from geopolitical shocks.

The worst terrorist attack in Europe since 2004 has rattled governments and investors. The French government has closed the nation’s borders and placed thousands of soldiers on the streets of the country’s major cities.1

As an anxious world watches the response of France (and perhaps other nations) to the ISIS attacks, there is also concern about European and global financial markets. Wall Street, which is coming off its second-worst week of the year, hopes that fear will not drive a major selloff.2

Even if it does, history suggests that any damage to global shares might be temporary.

While geopolitical shocks tend to scare bulls, the effect is usually short-term. On September 11, 2001, the attack on America occurred roughly at the beginning of the market day. U.S. financial markets immediately closed (as they were a potential target) and remained shuttered the rest of that trading week. When Wall Street reopened, stocks fell sharply – the S&P 500 lost 11.6% and the Nasdaq Composite 16.1% in the week of September 17-21, 2001. Even so, the market rebounded. By October 11, the S&P had returned to the level it was at prior to the tragedy, and it continued to rise for the next few months.3,4

In the U.S., investors seemed only momentarily concerned by the March 11, 2004 Madrid train bombings. The S&P 500 fell 17.11 on that day, as part of a descent that had begun earlier in the month; just a few trading days later, it had gained back what it had lost.5

Perhaps you recall the London Underground bombing of July 7, 2005. That terror attack occurred on a trading day, but U.K. investors were not rattled – the FTSE 100 closed higher on July 8 and gained 21% for the year.4

Wall Street is remarkably resilient. Institutional investors ride through many of these disruptions with remarkable assurance. Investors (especially overseas investors) have acknowledged the threat of terrorism for decades, also realizing that it does not ordinarily impact whole economies or alter market climates for any sustained length of time.

You could argue that the events of fall 2008 panicked U.S. investors perhaps more than any geopolitical event in this century – the credit crisis, the collapse of Lehman Bros. and the troubles of Fannie, Freddie, Merrill Lynch and Bear Stearns snowballed to encourage the worst bear market in recent times.

When Hurricane Katrina hit in 2005, truly devastating New Orleans and impacting the whole Gulf Coast, it was the costliest natural disaster in the history of the nation. It did $108 billion in damage and took more than 1,200 lives. Yet on the day it slammed ashore, U.S. stocks rose 0.6% while global stocks were flat.4,6

The terror attacks in France and Lebanon have stunned us. They may stun the financial markets as well, but perhaps not for long.

Mike Moffitt may be reached at ph# 641-782-5577 or email mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – cnbc.com/2015/11/13/french-police-report-shootout-and-explosion-in-paris.html [11/13/15]

2 – abcnews.go.com/Business/wireStory/stocks-set-end-winning-streak-retail-slammed-35177303 [11/13/15]

3 – tinyurl.com/pzwzrmb [11/14/15]

4 – moneyobserver.com/opinion/terrorism-terrorises-stocks-fishers-financial-mythbusters [10/22/15]

5 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=3%2F11%2F04&x=34&y=18 [11/14/15]

6 – cnn.com/2013/08/23/us/hurricane-katrina-statistics-fast-facts/ [8/23/15]

 

 

 

 

 

The Long Ascent of the S&P 500

The index has overcome obstacle after obstacle through the years.

No one knows what will happen tomorrow on Wall Street. Even the most esteemed analysts can only make educated guesses. As the old saying goes: past performance is not indicative of future results.

All that said, the market has had many more positive years than negative years. The history of the S&P 500 is worth considering in light of recent market volatility. The S&P is the broad benchmark that economists, journalists, and investors regard as shorthand for the “market.” As the S&P 500 includes about 500 companies, it represents overall market performance better than the 30-component Dow Jones Industrial Average.

If you look at the annual returns of the S&P since 1928, you will see a long ascent with periodic interruptions, and a historical affirmation of equity investment. Looking at the total returns of the S&P (with dividends reinvested), the numbers are even more impressive.

The S&P advanced in 63 of the 87 years from 1928-2014. The average total return during those 63 profitable years was 21.5%. The average total return during the 24 down years was not as bad: -13.6%.1

The index has endured only four multi-year slumps in this 87-year period: 1930-31, 1940-41, 1973-74 and 2000-02. As for extremes, the total return for 1954 was 52.56%; the total return for 1931 was -43.84%.2

Narrowing the time frame a bit to reflect the investing experience of baby boomers, the S&P advanced in 31 of the 40 years from 1975-2014.3

Have market gains typically outpaced inflation? Looking at data since 1950, the answer is yes. Only in the 1970s and 2000s did U.S. equities climb less than consumer prices. The nadir came in the 1970s, when yearly inflation averaged 7.4% while the S&P’s average price return was 1.6% and its average total return was 5.8%. Contrast that with the 1990s. In that decade, the annual price return for the index averaged 15.3%, the average total return 18.1%; mean yearly inflation was just 2.9%.4

When it seemed like the market was coming apart, the S&P recovered. As the oil crisis and inflation threatened to unglue venerable economies in the 1970s, the S&P posted total returns of -14.31% in 1973 and -25.90% in 1974. Then it roared back, gaining 37.00% in 1975 and 23.83% in 1976. When the dot-com bubble burst, the total return was -11.85% in 2001, -21.97% in 2002; after that, the S&P’s next two annual total returns were +28.36% and +10.74%. When the credit crunch and the Great Recession occurred, the index delivered an abysmal -36.55% total return in 2008; the next year, the total return improved to +25.94% and stayed positive through 2014.2

The S&P’s compound returns are especially encouraging. In studying the index’s compound annual returns, we get a solid understanding of how staying in the market has benefited the U.S. equity investor. Average returns are interesting, yet they do not factor in cumulative gains or losses over a given period.

Examining 40-year performance periods for the S&P from 1928-2014, the poorest such period had a compound return of 8.9%. The best 40-year “window” had a 12.5% compound return. Using an even narrower “window,” we find that the best 15-year stretch was from 1985-99, producing a compound return of 18.3%. The poorest 15-year stretch occurred before many of today’s investors were born: the interval from 1929-43 had a compound annual growth rate of just 0.6%.1

The compound return across 1928-2014 is 9.8%, in simplest terms meaning that a $100 investment in shares of S&P 500 firms in that year would have grown to $346,261 in 2014.1,*

The correction we have just witnessed looks momentary indeed in the light cast by these “windows” of time.

The lesson? Stay patient & keep the big picture in mind. Before this latest correction, the market had been comparatively calm for so long (the previous 10% drop happened nearly four years ago), investors had almost forgotten what a correction felt like. Moreover, that 2011 correction was the culmination of a three-month market descent; it was not so abrupt.5

We cannot predict tomorrow, but we can take comfort (and encouragement) from the history of the market and how well the S&P 500 has performed over time.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

 * This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

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.

 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. Past performance is not guarantee of future results.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – marketwatch.com/story/understanding-performance-the-sp-500-in-2015-02-18 [2/18/15]

2 – pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html [1/5/15]

3 – 1stock1.com/1stock1_141.htm [8/27/15]

4 – simplestockinvesting.com/SP500-historical-real-total-returns.htm [8/27/15]

5 – cnbc.com/2015/08/21/the-associated-press-qa-what-a-stock-market-correction-means-to-you.html [8/21/15]