Stonks just keep going up, despite the pessimists
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The S&P 500 notched a fantastic year in 2024, closing up 25% on a total return basis (with dividends reinvested).
Why it matters: Over longer time horizons, the performance looks even better. It's the best two-year return since the late '90s, and the best 20-year return since 2008.
- As good as that is, returns are still well below where they've been at many points in the past.
The big picture: For most investors, what really matters isn't what happens to the stock market from day to day or even from year to year, but rather how their money grows over the long term.
- By that metric, stock returns have been excellent. The total return to the S&P 500 over the past decade is 242%, which means that $1,000 invested at the beginning of 2015 would be worth $3,425 today.
- Over 20 years the return is a whopping 618% — $1,000 invested in 2005 would have turned into $7,175.
Zoom out: While such gains are impressive, they're far from unprecedented.
- 20-year returns peaked at more than 2,500% in 2000, while 10-year returns were more than 400% in March 2019.
- While 10-year returns are sometimes negative, as in March 2009, 20-year returns have been persistently positive.
The other side: America is exceptional, in large part because of the performance of a handful of huge tech companies. Stock markets in other countries, lacking megacap outperformers, have been underwhelming in comparison.
- The MSCI ACWI ex USA index, which tracks the performance of non-U.S. markets, is up a mediocre 6.1% over one year, 25% over five years, and 68% over 10 years.
Our thought bubble: It's natural to assume that what goes up must go down, and that bull markets are inevitably followed by bear markets. But in reality, anybody betting that stocks would converge back to their long-term average valuations has lost a lot of money in recent years.
- That said, stock strategists at Goldman Sachs, for one, think the good times are largely over.
The bottom line: While the stock market's long-term performance has been strong, it hasn't been wildly exceptional. Valuations may be high, but what goes up often goes up further.
