Looking Past the S&P 500: Is Everything at All-Time Highs?
Stop me if you have heard this before:
The S&P 500 made new all-time highs (ATHs) last week…again. The index has already returned 5.5% to start 2024, through last Friday.
And again, we ask: is it time to sell?
(Prefer video? Scroll to the bottom to watch.)
We asked the same question last week, and the week before. I suggested the answer is, “No” and gave four reasons:
Stocks are long-term investments. Click here to read more on that topic, or watch the video.
Value and price are different concepts. Click here to read those thoughts.
Other markets are not at ATHs. Some groups of stocks like small caps and emerging markets, are still 10-30% below their 3-year peaks.
It creates more opportunities for emotional decisions we would prefer to avoid.
Looking beyond the S&P 500
Today, we take a closer look at the third reason. The S&P is just one group of companies, defined by:
Geography (U.S.),
Size (big), and
Public ownership (vs. privately owned businesses)
If you are reading this, I bet the odds are high that you don’t have 100% of your investable assets in an index fund tracking the S&P 500. You probably own other types of investments. So…
What about smaller companies? Or foreign companies? Or other asset classes? Are they also at all-time highs?
It turns out other pockets have not participated in this run, at least not to the same degree. Look at the chart below.
Green bars represent U.S. stocks.
Orange bars represent foreign stocks.
Brown bars represent bonds
Black bars represent a few “alternative” investments
The bars show the returns for each investment since its recent peak. You’ll notice two labels next to each bar. The first is the date of that recent index peak. The second is the total return from the date of that peak through last Wednesday, February 13, 2024. And it is sorted from highest returns to lowest.
Still well below the peak
All the bars at the top of the chart represent different groups of U.S. stocks. It’s all green, led by the tech-heavy NASDAQ and other mega cap stocks. No surprise there.
Look toward the bottom of the chart.
Emerging market stocks are 25% below their 2021 peak. Real Estate Investment Trusts (REITs) are more than 20% off from the beginning of 2022. And small stocks are generally down 10% or more.
Don’t forget about bonds! Look at all the brown bars with big negative numbers. This is another reminder of what can happen to bond prices, particularly long-term, high quality bonds like some U.S. Treasury bonds, when interest rates rise.
Big U.S. companies have performed best from their recent peaks, setting all-time highs in recent weeks. Growth-oriented groups have been particularly strong. Foreign stocks have generally lagged, with emerging markets performing worst. Bonds have also struggled as interest rates moved higher.
summary
Effective diversification is more about managing risk than maximizing returns, and there’s plenty of art combined with the more technical side of allocating investment dollars. Keep that in mind when we see certain markets making big moves higher.
Unless you have all or most of your investable assets in a fund that tracks the S&P 500, you likely have investments that are still well below recent peaks. That’s usually the case. Rather than indiscriminately selling, revisit your intended mix. Have recent market moves introduced new unwanted risks in your portfolio? Or, are you still close to your target allocations?
If you’d prefer to talk though your situation, please don’t hesitate to reach out and schedule a call with our team. We’d love to help.
LT U.S. Treasury represented by Bloomberg US Trsy Bellwethers 30Y TR USD. Emerging Mkts represented by MSCI EM NR USD. Commodities represented by Bloomberg Commodity TR USD. REITs represented by FTSE Nareit All Equity REITs TR USD. 10yr U.S. Treasury represented by Bloomberg US Trsy Bellwethers 10Y TR USD. Small Cap Growth Stocks represented by Russell 2000 Growth TR USD. Small Cap Core Stocks represented by Russell 2000 TR USD. Corporate Bonds represented by Bloomberg US Corp Bond TR USD. U.S. TIPS represented by Bloomberg US Treasury US TIPS TR USD. Aggregate Bonds represented by Bloomberg US Agg Bond TR USD. Listed Infrastructure represented by S&P Global Infrastructure NR USD. Mortgage Backed Securities represented by Bloomberg US MBS TR USD. Small Cap Value Stocks represented by Russell 2000 Value TR USD. Global ex USA Stocks represented by MSCI ACWI Ex USA NR USD. Municipal Bonds represented by Bloomberg Municipal TR USD. Developed International Stocks represented by MSCI World ex USA NR USD. International (EAFE) represented by MSCI EAFE NR USD. NASDAQ Composite represented by NASDAQ Composite TR USD. Global Stocks represented by MSCI ACWI NR USD. Large Value Stocks represented by Russell 1000 Value TR USD. S&P 500 represented by S&P 500 TR USD. Large Growth Stocks represented by Russell 1000 Growth TR USD. Mega Cap Stocks represented by Russell Top 200 TR USD. NASDAQ 100 represented by NASDAQ 100 TR USD.
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