2. Milestones are good times to reassess a portfolio, and you might be surprised at what you learn.
The market essentially took 16 ½ years to double at an annual compounded rate of about 3 percent—6.2 percent with dividends. That’s a long time, churning higher for sure, but slowly.
What’s interesting is that if you invested back in 1998—when the S&P 500 first hit 1,000—in utilities, you did better than if you had invested in technology, and “you slept all the way through,” Silverblatt says.
But now, it’s “idea” companies that are doing well, rather than hardware, machinery, product-type of stocks. In other words, the sectors that did well up to now aren’t necessarily the ones you would have expected, nor are they the ones that will necessarily do well ahead.
Today Apple is the largest stock in the S&P 500. It was No. 456 back in 1998. Google is among the top 5, and it didn’t even exist publicly 10 years ago.
But looking ahead, it’s worth considering that the market of today is in “no way normal,” said Jonathan Citrin of Citrin Group. He, like Hulbert, says the unprecedented amount of central bank intervention is crucial to market run following the worst downturn since the Great Depression.
“Historic correlations are not holding up; something is amiss,” Citrin said. “The market is in no way normal, and the performance of the S&P 500 doesn’t make a whole lot of sense.” Economic growth is improving, the job market is growing, but the broad economy is recovering at a very slow pace, he notes.
Moreover, with the end of the Federal Reserve’s aggressive quantitative easing program now in sight, uncharted territory lies ahead.
“The S&P 500 is typically a leading indicator, so is this a sign of what’s to come, or is this a warning?” Citrin said. “The bottom line is people better stay really diversified.”