Published Friday, October 13, 2017 at: 7:00 AM EDT
With a new quarter just under way, it's a good time to look back at the key investment trends over the last five years. The five-year period is part of a bull market that started in March 2009, when the economy was emerging from the most frightening financial crisis in decades. The recovery and expansion is now the second longest in modern U.S. economic history.
After rising steadily in 2012 and 2013, the Standard & Poor's 500 traded sideways from mid-2015 to mid-2016 - nosediving in rapid double-digit descents in October 2014, August 2015, and February 2016. Share prices of America's largest publicly-held companies broke out after the November 2016 election, and they've climbed steadily since then.
Over the last five years, the S&P 500 total return index, which includes reinvestment of dividends, grew by 94%. Without reinvesting dividends, the average price of a share in the S&P 500 soared by 75%.
This chart shows the returns on indexes representing 13 asset classes for the five years ended September 30, 2017 and is more important to investors mitigating their risk by diversifying broadly. A 68.4% loss in the S&P Goldman Sachs index tracking crude oil gives an indication of the danger of investing too much of a portfolio in any one industry, asset class or style.
The engine of growth of retirement portfolios, the S&P 500, nearly doubled in value over these five years. Since this five-year span was characterized by a low rate of inflation, the real growth of portfolios has benefited investors.
The S&P 500 index's total return of 94% in the five-year period was twice the return on the S&P global index that excludes U.S. stocks, which returned 47%. This is a testament to how resilient the U.S. economy was in the aftermath of the severe global recession of 2008, compared to other economies across the globe.
At the bottom of the pack, in last place, was crude oil. The price of oil dropped globally because of a surge in U.S. supply that resulted from the shale-fracking revolution. Some experts now believe oil prices won't ever recover back to the days when it sold for more than $100 a barrel because of U.S. production capabilities.
Commodities and gold, too, have been money-losers over the past five years with the strong dollar, slowing growth in demand for most commodities and low inflation.
The Standard & Poor's 500 index finished the week at 2553.17, which was just a fraction short of its all-time high reached on Wednesday of 2555.24.
Larry Fink, the CEO of BlackRock, the world's largest investment manager, warned investors Friday about the stock market. "If there is a major event, which I don't foresee anything, but if there is one, we could have a big correction," Mr. Fink reportedly was quoted as telling a business group.
As this bull market grows older, the statistical likelihood of a bear market - a drop of at least 20% - does indeed increase. But fundamental economic conditions that have accompanied bear markets in the past are not present at this time. Historically-important precursors of a bear market - restrictive Fed policy, slowing economic growth, stock market overvaluation, or irrational exuberance - are not evident yet. A correction of 10% or 15% is possible at any time, just because of a change in sentiment or a bad unexpected event. But the economy is showing no signs of coming undone and the bull market could also go on longer and head much higher.
All recessions in modern U.S. history have been caused by the Fed, usually by tightening credit too much to squelch inflation. In the current economy, inflation has been below normal and lower than expected, giving the Federal Reserve added leeway to let the economy run faster without worrying about inflation. On Friday, new numbers from the government showed that oil prices rose in September because of the disruption from hurricanes hitting the Gulf Coast, but inflation otherwise remained benign.