“New normal”: Not new. Just normal.
There is a broad consensus that equities are in a “low return environment”. Although such fears might have been expected following 2008’s bear market, it is surprising that the low-return rhetoric continues despite that the bull market is now more than 7 years old.
Fears that returns would be lower than normal have fostered grave misperceptions that have hurt overall portfolios’ performance. Despite investors’ fears, this cycle’s returns have actually been quite normal over various time horizons.
Chart 1 shows the distribution of all rolling 12-month total returns from December 1926 onward delineated by quintile. The most recent 12-month return of 12.6% looks normal, sitting just slightly below the median of 12.9%.
Source: Richard Bernstein Advisors LLC, Standard & Poor’s, Morningstar For Index descriptors, see "Index Descriptions" at end of document. Past performance is no guarantee of future results.
This cycle’s median 12-month return does not appear extreme or over-heating of the bull market. Although easily above the long-term median, the current bull market’s median 12-month return of 15.1% remains in the middle quintile historically, whereas the typical median total return at stock market peaks was 18.4%.
Longer-term performance appears quite normal – Neither too hot nor too cold
Over either a 3-year, a 5-year or a 7-year annualized horizon, the returns distribution charts below also highlight that current returns look normal. Each period’s returns are above their long-term median. However these returns certainly do not suggest the euphoric excess that has typically accompanied prior bull market peaks.
Source: Richard Bernstein Advisors LLC, Standard & Poors, Morningstar. * Includes prior bull markets with the full return period available. For Index descriptors, see "Index Descriptions" at end of document. Past performance is no guarantee of future results.