STOCKS VOLATILE, ECONOMY STRONG
The S&P 500 index gained just 4% over the 12 months ended June 30, 2016. A collapse in profits hit energy and mining companies hard, and hurt earnings of the S&P 500. A 4% return is less than half the average annual return of about 10% on U.S. large-companies' equities since 1926.
BULL MARKET RETURNS
This is the picture of a historic bull market that went nowhere after 2014. While stock returns have crept ahead in the last five years, gross domestic product has moved at a slow but steady pace, and was expected to accelerate to a 2.4% rate in the last three quarters of 2016.
ENERGY STOCKS CRUSHED
In the year ended June 30, 2016, three "defensive" -- utilities, telecom and consumer staples -- were leaders for the second quarter in a row. Financials were the biggest losers, followed by energy and commodities-related issues.
INDEXES TRACKING ASSET CLASSES
The huge difference between the best and worst asset-class returns shows why diversification is crucial. REITs, both U.S. and global, were No. 1 in the five-years ended June 30, 2016, along with U.S. large-cap stocks. Crude oil investments lost two-thirds of their value. Commodities and gold suffered crushing losses.
LEADING ECONOMIC INDICATORS
Leading economic indicators released on July 22 signaled continued growth ahead. Despite a disappointing second quarter economic growth estimate, the Conference Board's forward-looking economic release forecast a strengthening economy for the rest of 2016, driven by the great American consumer.
S&P 500 INDEX VS. EARNINGS*
Red squares show expected earnings on the S&P 500 index based on a June 29, 2016 forecast by Wall Street analysts for earnings of $118 per share in 2015, $119 in 2016, and $136 in 2017. Earnings growth is poised to propel stocks higher, unless a crisis or really bad unexpected news sets world progress back.
Sources: Yardeni Research, Inc. and Thomson Reuters I/B/E/S survey of consensus estimates. Standard and Poor's for index price data through June 30, 2016.