Stocks Go From Great to Good as the Bull Turns Five

March 3rd Weekly Market Update

The end of this week will make it five years since the second most powerful bull market in post-WWII history began. After five years, only the bull market that began on August 12, 1982 was stronger. It is not over yet. In fact, the bull market may be getting a second wind.

Despite its strength, the bull market has only recently been discovered by individual investors. Investors tend to chase returns. For the U.S. stock market, investors have most closely followed the rolling five-year annualized return, based upon their investing behavior. The five-year trailing annualized return for the S&P 500 Index had been weak, especially when compared with bonds, in recent years. But in 2013, the five-year return began to see a dramatic change.

Even as recently as the end of August 2013, the difference in the five-year annualized return between stocks and bonds was only about 2%, hardly enough to compensate investors for the volatility they experienced. By November 2013, the five-year return soared into the double digits — reflecting not only a strong recent gain in the stock market, but the dropping off of much of the horrific declines in the fall of 2008, when the financial crisis took hold. This week as we approach the March 9, 2014 five-year anniversary from the bear market low in the S&P 500 — assuming no change in the S&P 500 between now and then — the five-year annualized return will have exceeded bonds by 20%.


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