Since 1957, a 64-year span of modern history, 21 financial crises are shown here. Charting them against the performance of the Standard & Poorâ€™s 500 index, the key benchmark of the strength of the United States, puts current investment conditions in perspective. Hereâ€™s a key observation to help design a low-expense investment strategy:
Stocks have soared since the March 2020 Covid bear market low but are not deviating above their 7% long term average annual return trendline, like they did in the tech-stock bubble of 2000. This suggests stocks are not at bubble levels, at least not yet.
Itâ€™s crucial to view stocks in the context of bond yields. Bond yields are lower than ever before in over 200 years of American history.
A change in the way stocks have historically been valued has occurred because bonds are currently priced to provide negative real returns after inflation. Itâ€™s unprecedented.
Bonds yields are expected to stay low for the foreseeable future because of demographic and global economic trends. This makes stocks more attractive relative to bonds than in the past. Itâ€™s a change in the stock-bond valuation paradigm, and stocks could yet head much higher relative to the 7% trendline as a result.
Things really are different this time.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.