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.