Information Technology is a large part of the S&P 500 Index. Stocks in this sector represent 23.2% of S&P 500 market cap. The next closest sector is Health Care, which is 14.2% of index market cap. With the Technology Sector representing such a large part of the S&P 500 index, its performance is a strong driver of overall performance. Conversely, Information Technology is a much smaller portion of the international index. Information Technology represents 8.4% of the MSCI All Country World Index–ex U.S. With technology stocks far outpacing other sectors, it is difficult for other indices to keep up with the S&P 500.
Investors enjoyed the best of both worlds, with bonds also advancing at a solid pace. The iShares Aggregate Bond ETF rose over 8%. Falling interest rates from the Federal Reserve positively impacted stocks and bonds. Bond prices tend to rise as interest rates fall, as investors become willing to pay more for bond income than they would previously. Stocks also reacted positively to lower interest rates with the prospect that companies and investors will be able to borrow at lower rates, thus prompting ongoing economic investments.
It’s always great to celebrate a positive year. In times of larger positive or negative returns it’s also good to keep historical performance in perspective. The chart below illustrates the best and worst rolling returns for various time periods from 1973 through mid-2009. It’s evident that returns over the one-year period can be quite volatile. As we move to longer time frames, the highs and lows for rolling returns become smaller and start to smooth out.
Most notable is the prominence of higher returns versus low over the years. As we get toward five years and longer, the prospect of negative returns becomes extremely low. In fact, from 1973 to mid-2009 there has not been a 15-year period with a negative S&P 500 return.
While it is nice to think about avoiding those larger negative one-year returns, it doesn’t always pay to jump in and out of the market. Staying invested during the ups and downs can pay off nicely over the longer term. Coming into 2020 it’s important to keep this long-term perspective. Political risk is starting to heat up. International conflicts, an impending impeachment and a competitive U.S. presidential race could provide bumps in the road. However, predicting these bumps in the future is not always easy.
What we can rely on is the historical odds based on the data we can see for certain. These data indicate that investing at any starting point and planning for your personal future is most important when managing the growth in the investment landscape.
rolling returns from 1973 – mid 2009