Global indexes struggled in the last two bear markets
Total returns in recent bear markets
January 26, 2018 | 1 minute read
U.S. stocks touched another record high once again this week as the S&P 500 Index is in the midst of its best January return since 1997.1,2 Investors remain enthusiastic about the potential benefits of the recently signed tax bill along with the strong start to the current earnings season.
As noted last week, the Dow Jones Industrial Average recently completed its fastest ever thousand-point climb when it moved from 25,000 to 26,000 in just 8 days.3 Following such a rapid move, many market valuation metrics sit at, or near, all-time highs.
One such metric, the Shiller Cyclically Adjusted PE ratio, or CAPE, is currently at 33.6. It has only been higher once in its history, when it reached approximately 44.2 in 2000.4 It’s important to note that the market’s rising valuations have come at a time when volatility has been near a historic low point. The CBOE Volatility Index, at 11.52, currently sits at just over half its long-term average of approximately 19.3.5
No one can predict when or where the market will move next. However, investors might be wise to watch market conditions should volatility once again enter the markets from such potential sources as Fed policy, consumer demand and employment trends.
The chart highlights the performance across major equity asset classes during two recent downturns – the tech bubble that began in 2000 and the global financial crisis beginning in 2007. As shown, global diversification did not provide adequate protection to investors in either period.6 In both instances, performance across traditional asset classes remained highly correlated, generating significant declines across domestic, international and emerging market equities.26
This week’s chart looks at return drivers for middle market buyout transactions, which have generated higher realized capital multiples than large cap and may favor middle market managers looking forward.
