ECONOMY AND STOCKS STRONG
The Standard & Poor’s 500 returned 3.9% in 3Q2016, after a 2.5% return in Q2. Prices for America’s largest companies rose amid positive economic reports. After a yearlong recession in earnings, a recovery in
earnings on is forecast, as one of the longest economic expansions of the last century continues.
A GREAT FIVE YEARS
After trading sideways for 18-months — and three double-digit plunges — stocks settled into a slightly higher range in 3Q2016. In the five years ended Sept. 30, the S&P 500 total return was an incredible 113%, a doubling. Without dividends reinvested, the S&P 500 gained 92%, spectacular by historical standards.
TELECOM SERVICES LEAD
Telecom was the No. 1 sector, with a 26.8 gain. Tech shares surged, as risky investments were rewarded. After month after month of positive economic data, industrials and materials stocks shot up . Financials suffered, as ultra-low interest rates made it hard for banks to profit on loans.
INDEXES TRACKING ASSET CLASSES
The S&P 500 index’s total return of 113% over the past five years is more than double the 41% on the S&P Global index excluding U.S. stocks. This chart shows the resilience demonstrated by the U.S. economy after the severe global recession compared to the rest of the world’s economies. Crude oil and commodities crashed.
THIS EXPANSION VERSUS OTHERS
At 89 months, the current expansion is neither young nor old compared to the previous growth cycles since World War II. Stock prices may bounce up and down by 10% or even 15%. However, the fundamentals of the economy are strong. This expansion could go on for many years, and could increase in strength.
S&P 500 INDEX VS. EARNINGS¥
To be conservative, the dotted red line shows the trajectory of the S&P 500 stock index if stocks were to trade at 17 times earnings based on the most recent consensus estimates by Wall Street analysts. The dotted red line at the top right of this chart paints a pretty picture.
Past performance of investments is not a very reliable indicator of future performance. ± Indices and ETFs representing asset classes are unmanaged and not recommendations for any specific investment. Foreign investing involves currency and political risk and foreign-country instability. Bonds offer a fixed rate of return while stocks fluctuate. Leading economic indicators from the Conference Board. S&P 500 earnings bottom-up operating earnings per share for 2015 (actual), 2016 (estimated) and 2017 (estimated) as of November 1, 2016: $117.46; for 2016, $117.86; for 2017, $133.01. Sources: Yardeni Research, Inc. and Thomson Reuters I/B/E/S survey of consensus estimates. Standard and Poor’s for index price data through November 25, 2016; and actual operating earnings data through 2015.