Saturday, February 11, 2012

Volatile Equity Market Returns

Absent the significant market contraction in 2008/2009, both the Dow and S&P 500 Index have generated decent returns. For investors though, the equity market pullback during the financial crisis period of '08/'09 remains top of mind. As the below tables show, the year over year returns for these two indices have been pretty strong resulting in 3-year annualized returns in the mid-teens. Unfortunately, the significant decline during the financial crisis has resulted in no return over the four and five year time period.

returns 1 31 2012

The Chart of the Day puts this most recent rally in perspective in their below commentary and chart.
"The Dow made another post-financial crisis rally high Thursday as it approached the 13,000 level. To provide some perspective to the current Dow rally that began back in early October 2011, all major market rallies of the last 111 years are plotted on today's chart. Each dot represents a major stock market rally as measured by the Dow. As today's chart illustrates, the Dow has begun a major rally 28 times over the past 111 years which equates to an average of one rally every four years. Also, most major rallies (78%) resulted in a gain of between 30% and 150% (29.8% to 150.5% to be exact) and lasted between 200 and 800 trading days (9.5 months to 3.2 years) -- highlighted in today's chart with a light blue shaded box. As it stands right now, the current Dow rally (hollow blue dot labeled you are here) would be classified as well below average in both duration and magnitude."
dow rallies

At HORAN Capital Advisors, we believe this heightened volatility is likely to represent the return pattern for investors for the foreseeable future. As such we believe it is important for investors to incorporate a high quality portfolio for their core equity investments. Additionally, making use of so called alternative investments that potentially minimizes downside returns is equally important.

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