Anyone can gawk at a chart of the S&P 500 and wonder oafishly if stocks have run up too sharply.
However, there’s more than one way to look at the S&P 500.
Charles Schwab’s Liz Ann Sonders (via Josh Brown) recently posted this chart, which considers the state of the stock market in terms of long-term returns. After all, returns are something investors can actually relate too.
Here’s Sonders’ commentary:
Shifting gears, let’s look at another sign that there could be a lot more room to run for the market. Deservedly, much attention was given to the “lost decade” that was evident at the lows in 2009. From that low looking back 10 years investors had lost money; a rare occurrence last seen coming out of the Great Depression in the 1930s.
But notice the long-term pattern of this chart. Investors don’t spend a lot of time hanging around the mean line, but instead the market tends to trend in one direction for multi decades (well-overshooting the mean) before heading back down to well-undershoot the mean. Being less than five years into the upcycle, history suggests we have more room to run.
Fascinating. Maybe we aren’t in a bubble.