May has moved back to the rearview mirror and with that, we wanted to provide an update on how current long-term returns for the S&P 500 stack up relative to history.  The chart below compares the trailing one, two, five, ten, and twenty-year annualized total returns of the S&P 500 to the S&P 500’s historical average returns over those same time periods since 1928.

We’re starting to move away from the ‘easy comps’ in terms of market returns relative to the March 2020 lows, but the S&P 500 is still up more than 40% over the last 12 months which is nearly four times the historical average one year return. Over the last two years, the S&P 500’s annualized return of 25.8% still comes in at more than twice the historical average of 10.6%.  On a five and ten-year basis, the S&P 500’s annualized gain also remains comfortably above 10%.  All in all, the last decade has been very good for US equity investors.  The only time period where the S&P 500 has experienced below-average returns is at the 20-year window where the 8.4% annualized gain clocks in at 2.5 percentage less than the historical average of 10.9%.

The chart below compares the S&P 500’s current returns over the last one, two, five, ten, and twenty years to all other periods on a percentile basis.  With mostly above-average returns, it comes as no surprise that most of the percentile readings rank above the 50th percentile, and for most time periods, the percentile rank comes in well above 50%.  The one-year total return of more than 40% actually ranks just above the 93rd percentile, while the two-year return isn’t far from the 90th percentile either.  Moving further out, each of the other readings going out to ten years are all well above the 50th percentile. The only percentile rank below the 50th percentile is the 20-year window and that reading isn’t even close.  On the one hand, the last ten years have been phenomenal for equity investors, but the last 20 years haven’t even been mediocre.

Throughout history, many investors have always worked under the assumption that long-term returns for the equity market are about 10%.  History has shown that to be the case over the last decade at least, as the average annualized one-year gain of the S&P 500 has been well above 10%.  With the S&P 500’s current 20-year annualized gain currently at just 8.4%, though, what will it take for the S&P 500 to reach double-digit gains on an annualized basis over a 20-year window?

For an idea, given the strong performance of the last ten years, a number of commentators suggest that the next ten years for equities will be weak with a reversion to the mean.  Only time will tell, but if we operate under the (unlikely) assumption that the S&P 500 stays at the exact same level it is now going forward for the next ten years, its annualized twenty-year return would top 10% for the first time since August 2008 next September.  After that brief period above 10% from September 2022 through March 2023, it wouldn’t again top that level until February 2029.  In spite of the fact that the annualized 20-year return would top 10% in those two periods, though, it still wouldn’t get as high as the historical average of 10.9% in either of those periods.  This reflects the fact that although the last ten years for US equities have been very strong, they also came shortly after one of the worst ten-year periods for US equities on record.  Click here to view Bespoke’s premium membership options.

In the past week, the meme stocks like GameStop (GME) and AMC Entertainment (AMC) have come back in focus with each name making explosive moves to the upside which resulted in them being some of the top-performing stocks in the Russell 3,000 last week.  In the case of GME, the stock was up over 50% on the week at the intraday highs on Friday.  In spite of those big gains, GME was still left a few percentage points below the March closing highs and even further below the peak short squeeze highs from late January.  Meanwhile, AMC saw an even more sensational move that left its prior highs in the dust.  At its highs on Friday, AMC was sitting on an over 200% gain on the week which was just over 80% above the January 27th high.  Similar to GME, the highs on Friday did not hold through the end of the day as the stock ultimately closed down 1.5% versus Thursday’s close.  Starting off the shortened week, both GME and AMC are resuming huge moves higher with the stocks up 11.58% and 24.66%, respectively, as of this writing. Granted, even with those massive moves, both stocks are seeing an inside day.

Looking beyond two of the poster children of the short squeeze saga, performance last week was marked by a return to themes that were present in the period in January.  As shown in the top-right chart below, the same stocks that were up the most year to date through January 27th (the day of the original highs of both GME and AMC) were again the top performers last week. That decile of Russell 3,000 stocks on average were up 4.67% last week. Another identical theme of performance to January observed last week was with regards to heavily shorted names.  The deciles of the most highly shorted stocks—to which AMC and GME both still belong—were also some of the top performers last week.  The decile of the most heavily shorted names rose 3.73% on average.  Meanwhile, the least heavily shorted stocks on average only gained 0.3%.Click here to view Bespoke’s premium membership options.

Please click the image below to view our June 2021 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Start a two-week free trial to one of Bespoke’s three research levels.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

While you’re here, join Bespoke Premium with a 30-day free trial!

Inflation

Reopening Is Inflation’s Cure, Not Cause by Jason M. Thomas (WSJ)

As patterns of supply and demand normalize after the pandemic, the price dislocations which have sent small categories of inflation soaring are likely to normalize into more familiar patterns that moderate the recent spike. [Link; paywall]

83% Of Americans Are Belt Tightening Due To Inflation Pressures by Walter Loeb (Forbes)

While consumer spending has boomed, Americans report they aren’t actually spending as much as they are, scared off by the high price of food and other goods. [Link; paywall]

Memorial Day

The First Decoration Day by David W. Blight (Newark Star Ledger/David W. Blight)

Recalling the origin of Memorial Day, which started as a march honoring Union war dead on the grounds of what used to be the slaveholders’ race track in Charleston, South Carolina. [Link]

Auto Industry

Cars Are About to Get a Lot More Expensive by Anjani Trivedi (Bloomberg)

With the used car market jammed with demand as well as semiconductors and other basic input commodities coming up in short supply, auto manufacturers are getting a golden opportunity to raise prices. [Link; soft paywall]

Tesla Model S Reaches Parity With Gas-Powered Cars In Test Drive (Value Walk)

A recent road test saw the Tesla Model S travel over 300 miles at 75 miles per hour, a first for the electric vehicle company and a key range achievement relative to the performance of internal combustion engines. [Link]

Investing

Dow Jones Industrial Average Celebrates 125 Years as Wall Street’s Bellwether by Karen Langley and Peter Santilli (WSJ)

This week saw the venerable Dow Jones Industrial Average introduced, starting a history that has weathered every bull and bear market since. [Link; paywall]

Bank of America’s Merrill Lynch to Ban Trainee Brokers From Making Cold Calls by Rachel Louise Ensign (WSJ)

While cold LinkedIn messages are still okay, advisor trainees in the Thundering Herd will no longer be encouraged to give prospective clients an uninvited phone call. [Link; paywall]

A New ETF Taps Investors’ Fear of Missing the Latest Hot Stock Trend by Evie Liu (Barron’s)

FOMO will try and hold stocks that are currently on the market’s radar but doesn’t hold stocks like COIN or any of the SPAC stocks which have made such a big splash in both directions over the past year. [Link; paywall]

Tech

A Cynic’s Guide To Fintech by Dan Davies (Medium)

While this rundown is over half a decade old, it helps to point out the relatively limited scope that fintech companies can operate in with a durable competitive advantage. [Link]

How 5G May Improve Early Warnings of Severe Weather by Marco Quiroz-Gutierrez (WSJ)

Changes in the signals of cellphone towers can be used to measure humidity shifts, a key data point that may help meteorologists develop more accurate and timely weather models which can speed up warnings. [Link; paywall]

Facebook Reverses Ban on ‘Man-Made’ COVID References After Biden Orders Review by Alex Noble (Yahoo! News)

As the discourse shifts, Facebook has lifted a blanket ban on asserting that COVID was created in a lab, a claim that has been latched on to by the conspiratorial fringe since the first days of the pandemic. [Link]

Pot

Positive Marijuana Tests Are Up Among U.S. Workers by Matt Grossman (WSJ)

2.7% of the 7 million drug tests conducted by Quest Diagnostics for employers came back positive for marijuana as a rising share of the national labor force lives in states where recreational marijuana use is legal. [Link; paywall]

Real Estate

In Tight Housing Market, Thousands of Homes Are Reserved for Certain Buyers by Nicole Friedman (WSJ)

With so much demand, sellers are able to sidestep the public sales process to show homes to a select group of buyers, though such “pocket listings” account for only 3% of sales this year. [Link; paywall]

Cardio

The Cardiovascular Secrets of Giraffes by Bob Holmes (Smithsonian Mag)

To make sure blood circulates their extremely tall bodies, giraffes have to have very high blood pressure, but they don’t suffer most of the maladies that come with high blood pressure in humans. [Link]

Read Bespoke’s most actionable market research by joining Bespoke Premium today!  Get started here.

Have a great weekend!

The S&P 500 has been hovering around 0.5% below its record highs this week, but without a true test of those highs, sentiment has not moved very far. The American Association of Individual Investors‘ weekly reading on bullish sentiment fell from 37% last week down to 36.4%. While that is the second week in a row with an absolute move less than a full percentage point in size, the marginally lower reading does leave bullish sentiment at the lowest level since the end of October.

Bearish sentiment moved by even less, only rising 0.1 percentage points.  At 26.4%, it still is below the reading of 27% from the first week of the month. Outside of that reading, that is the highest level since February.

This week’s moves left the bull-bear spread little changed at 10.  That’s down 0.7 points from last week but still above the 9.5 reading from two weeks ago.

Once again, the highest percentage of investors are in the neutral camp at 37.1%.  As was the case last week, that makes for the highest level in neutral sentiment since the first week of 2020 when it stood north of 40%.

Pivoting over to sentiment for equity newsletter writers measured in the Investors Intelligence survey, there were some more interesting moves.  Bullish and bearish sentiments were not necessarily anything to gawk at similar to the AAII survey. Bullish sentiment has been on the decline with this week’s survey showing a 3 percentage point drop to 51.5%, the lowest level since March 10th. Meanwhile, bearish sentiment moderated from 17.2 to 16.8%. That was the same level as the start of the month.

The percentage of respondents “looking for a correction” was more notable. Rather than simply asking whether or not respondents foresee a correction in the technical sense on the horizon (a 10% decline from a high), Investors Intelligence defines a newsletter writer as “looking for a correction” when they are bullish on a list of stocks but at a lower price point. Coming in at 31.7%, the reading is a few percentage points above the historical average of 27.6% and is in the top quartile of the historical range.  In other words, it is an elevated reading albeit far from without precedence.  What is more significant is that it has been over a year since this part of the survey has seen these levels.

In the history of the survey dating back to 1963, there have only been eight other times that the percentage of newsletter writers looking for a correction has crossed above 30% for the first time in at least a year.  The most recent of these was in April 2009. In the table below we show the S&P 500’s performance in the year following those occurrences.  As shown, performance has been generally positive across those past instances with average gains over the following weeks and months and moves higher at least 75% of the time one month, three months, and one year out.  Additionally, while there were two times, 1982 and 2009, in which the S&P 500 rallied over the following year without looking back, there were another two times, 2001 and 2007, that at the following years’ lows, the S&P 500 would end up lower by double-digit percentage points.  Click here to view Bespoke’s premium membership options for our best research available.