S&P 5000

Recently, the S&P 500 (a much better measure of the stock market than the 30-stock Dow Jones Industrial Index) reached 5,000.[1]  While there is nothing magical about 5,000, round numbers are viewed as milestones.   What should we take from this achievement?

I decided to look at the compounded returns that got us to this point. Over the last ten years, the S&P 500 has averaged a compounded annual 10.7% price return.[2] My data set, compliments of the Wall Street Journal, only has price level, so we are ignoring dividends, which have historically averaged about 2.5% per year. Since the 2022 low to the recent peak, the price return was 29.6% annualized. The S&P 500 compounded at 22.5% since the COVID low, and 15.7% from the pre-COVID high. Think about that for a second. We experienced the greatest global pandemic in at least 100 years, and the governments of the world thought it would be a good idea to deal with it but shutting down the economy and only slowly reopening it. If a reasonable analyst knew in advance that would have happened, he would have expected massive devaluations in asset values. Instead, the market has raged on as if nothing ever happened. The S&P 500 first hit 2500 around the end of 2018, so it doubled in just five years, and rose a few percent more since then, averaging 18.8%, again without even counting the dividends. This is even better than the 14.5% annual return it has averaged since the Great Financial Crisis (GFC) low in March of 2008. Finally, I looked at the average return since when the S&P 500 first hit the 100 milestone. It has averaged 8.9% per year (ex-dividends) since March of 1978.

Finish reading:S&P5000.pdf

[1] The challenge of writing timely pieces when writing is not one’s main job is that things are constantly changing and an article not quickly published needs to be constantly updated.  I started this soon after the S&P crossed the 5000 threshold.   It continued to soar, then fell a little below 5000.  The basic logic applies whether the index is at 5000,5250 or 4980.

[2] These numbers are moving around a little as well, but long-term returns aren’t as influenced by a good or bad month.