I haven’t done a market update in a bit. Partially because there hasn’t been much of anything exciting to write about. With the first half of the year in the books I figured it was worth dusting off the market thoughts and share some knowledge.
- Year-to-Date Numbers – The S&P 500 is up 9.3% at the half-way point of the year. I cannot harp enough on having a properly diversified portfolio. If you had one you might notice that emerging markets are up over 18% during the same time period. Commodities continue to struggle being the worst performing asset class with a -5.3% return so far. Every other major asset class is positive for the year.
- 20-Years of Returns – Looking at a longer period of time we can see how certain asset classes performed from 1997 through 2016. REITS (real estate investment trusts) were the best performing class averaging 9.7% annually. The S&P 500 was in second place with an annualized return of 7.7%. The second worst performing was the average investor at 2.3%, which is slightly ahead of inflation of 2.1%. Yikes!
- Market Since the Great Recession – We are nearing the 10-year anniversary of the start of the Great Recession. In case you haven’t noticed, the market has done quite well since then, even including the year and a half of the Great Recession. Since October 2007 the best performing US asset class was Large Cap Growth with a return of 119.4%. The best performer since the bottom of the market in March of 2009 is Mid Cap Value at 416.9%. This bull market is now 99 months long, which makes it the second longest one, and the S&P500 has climbed 258% since March 2009.
- The Return of Active Management? – Oh, how I love CNBC. They are the head of what is described as Financial Pornography in my world. There was a recent headline touting how Active Management Has Returned! As a reminder, active management is simply managers making specific investments trying to outperform their respective indexes. They are typically found with mutual funds. If you read the article, you will find out this is the first time since 2009 that more than half of active managers have finished ahead of their indexes for the first half of the year. Yes, because this happened once in nearly a decade CNBC is ready to declare that active management is back and better than ever. Honestly, active management will probably get better than it has been simply because so much money has moved to indexes it has thinned the herd of active managers and the hope is those remaining will have been the better performing ones.
- Employment Numbers, Inflation and Rate Hikes – One reason Chairperson Yellen and the Fed have kept rates low is to entice potential workers off the sidelines and back into the workforce. Last month saw the biggest jump in nearly 30 years of people moving from outside the labor force directly into jobs. Bringing these people back into the workforce is considered a contributing factor to help keep wage growth and inflation in check, for now. Chairperson Yellen has long been of the opinion that strong hiring (bringing as many people back into the workforce) will lead to higher wages and price pressures over time. If this trend continues getting us closer to full-employment then the odds of the Fed increasing rates only improves. Remember, when it costs more to borrow money the demand for products goes down which then helps keep their prices under control.