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  • Market Commentary

How Often Do We Experience a 'Normal' Stock Market? + 10.2.24

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Josh Jenkins, CFA, Chief Investment Officer, Principal
October 1, 2024
How Often Do We Experience a 'Normal' Stock Market? + 10.2.24

Stocks appear to have some momentum as we enter the final quarter of the year. The large-cap U.S. stocks of the S&P 500 ended September at an all-time high, notching a new record for the 43rd time in 2024. The index is up 22% so far this year, far outpacing the long-term average annual return. As it turns out, such a large deviation from the average is actually pretty normal for the stock market.

The chart below illustrates the annual return for the S&P 500 Index for each of the 98 years going back to 1926. A few observations:

  • The range of potential outcomes is very wide, stretching from above +50% to below -40%
  • The normal pattern seems to be several years of well above average performance, followed by a small to moderate loss, with a larger loss occurring every 10-15 years or so.
  • Although +10% is the long-term average return, the market very rarely ends a year anywhere near that figure.

1-Oct-01-2024-07-05-24-2892-PM

Source: Dimensional Fund Advisors

The last bullet above is very surprising. Of the 98 years represented in the chart, only six of them were within +/- 1% of the average! This has important implications for investors. If the market steadily churned out a 10% return each year, investing would be relatively easy. There would be far less noise constantly toying with investor emotions.

It takes considerable willpower to stay diversified when the market (or a segment within) is ripping. It’s arguably even harder to stay invested when it feels like the bottom is falling out. Fear and greed are powerful motivators that can lead to decisions that might cost you in the long run. To combat this, remember that large swings, both to the high and low side of the return spectrum, are a normal and healthy feature of the stock market.

Ultimately, a 10% return will double an investor’s assets roughly every seven years. That represents substantial wealth-creating power, particularly when compared to the long-term historical return on more stable asset classes, such as bonds (+5.1%) or cash (3.3%)1. By staying disciplined through the inevitable spikes and drops in the market, investors put themselves in the best possible position for success.

  1. Bonds represented by the IA SBBI Long-Term Government Bond Index. Cash represented by the IA SBBI 30-Day T-Bill Index. Historical returns reflect the period between 1926-2023.

Week in Review

  • The latest ISM (Institute for Supply Management) manufacturing PMI, a gauge for economic activity in the manufacturing sector, remained unchanged at 47.2 in September. This marks the sixth consecutive month (and the 22nd month out of the last 23) that manufacturing PMI has stayed below 50, an indication of contraction in manufacturing activity.
  • The August Job Openings and Labor Turnover Survey (JOLTS) report was released today (10/1) and highlighted that job openings in August increased 329,000 from the prior month to a total of 8.04 million. The report also showed that the “quits rate,” which measures voluntary separations as a percentage of employment, fell to 1.9%, the lowest since 2015, excluding the pandemic.
  • Data released last Friday showed that August Core PCE, the Federal Reserve’s preferred inflation measure that strips out food and energy costs, rose .1% on a monthly basis and 2.7% on a yearly basis. PCE, which includes food and energy costs, rose 2.2% on a yearly basis in August, the lowest level since early 2021.

Hot Reads

Markets 

  • Fed’s Powell Says Rate Cuts Can Sustain Soft Landing, but Sees No Need to Rush (WSJ)
  • Powell Indicates Further, Smaller Rate Cuts, Insists the Fed is ‘not on any preset course’ (CNBC)
  • Key Fed Inflation Gauge at 2.2% in August, Lower Than Expected (CNBC)

Investing 

  • The Fed Made Its Move. Why Didn’t I? (Jason Zweig)
  • An Epic Bull Market (Ben Carlson)
  • Podcast with Howard Marks (Morgan Housel)

 Other 

  • Caitlin Clark, Napheesa Collier on WNBA’s Success in Watershed Season – 60 Minutes (YouTube)
  • How Legendary NY Steakhouse Peter Luger Makes the Perfect State – Eater (YouTube)
  • Footage of the 1980 Mount St. Helens Eruption – Smithsonian Channel (YouTube)

Markets at a Glance

2-Oct-01-2024-07-05-24-3671-PM

3-Oct-01-2024-07-05-24-3118-PM

4-Oct-01-2024-07-05-24-2977-PM

Source: Morningstar Direct.

5-Oct-01-2024-07-05-24-3131-PM

Source: Morningstar Direct.

6-Oct-01-2024-07-05-24-3126-PM

Source: Treasury.gov

7-Oct-01-2024-07-05-24-3394-PM

Source: Treasury.gov

8-Oct-01-2024-07-05-24-3298-PM

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

9-Oct-01-2024-07-05-24-3706-PM

Source: FRED Database & ICE Benchmark Administration Limited (IBA)


Economic Calendar

10-Oct-01-2024-07-05-24-3829-PM
11-Oct-01-2024-07-05-24-3979-PM

Source: MarketWatch

IMPORTANT DISCLOSURE INFORMATION

  • Competition, Achiever, Relator, Analytical, Ideation

Josh Jenkins, CFA

Chief Investment Officer, Principal

Josh Jenkins, Chief Investment Officer, began his career in 2010. With a background in investment analysis and portfolio management from his previous roles, he quickly advanced to his current leadership position. As a member of the Lutz Financial Board and Chair of the Investment Committee, he guides Lutz Financial’s investment strategy and helps to manage day-to-day operations. 

Leading the investment team, Josh directs research initiatives, while overseeing asset allocation, fund selection, portfolio management, and trading. He authors the weekly Financial Market Update, providing clients with timely insights on market conditions and economic trends. Josh values the analytical nature of his work and the opportunity to collaborate with talented colleagues while continuously expanding his knowledge of the financial markets. 

 

At Lutz, Josh exemplifies the firm’s commitment to maintaining discipline and helping clients navigate market uncertainties with confidence. While staying true to the systematic investment process, he works to keep clients' long-term financial goals at the center of his decision-making. 

 

Josh lives in Omaha, NE. Outside the office, he likes to stay active, travel, and play golf. 

402.763.2967

jjenkins@lutz.us

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