Category Archives: Investing

Annual growth rate of the S&P 500 versus US GDP

S&P 500 : Three Strikes and Your OUT!

S&P 500 growth versus GDP growth

Other than a mini correction in April 2011, that was triggered largely from the European sovereign debt crisis, the S&P 500 (^GSPC) market price has continued to grow annually on average by 15.4% + 0.1 SD (median value of 13.1%) these last 6 years.  During this same six years the economy has limped along at an average annual growth rate of just 1. 4 % 2.1. (median value of 2.3%) .

With the S&P 500 at an all time high and companies reporting 2015 first quarter results that coincide with major league baseball’s opening day,  it’s time to ask as investors, “Is the present bull market in the 7th inning stretch or are we closer to the bottom of the ninth, two outs and S&P 500 at bat ?

s&P 500 chart for 2008 to 2015

S&P 500 chart 2008 to 2015


Annualized growth rate S&P 500 ( %)
Growth Rate US GDP (%)
2007 3.5 1.8
2008 -38.42 -0.3
2009 23.47 -2.8
2010 12.79 2.5
2011 1.54 1.6
2012 13.38 2.3
2013 29.72 2.2
2014 11.43 2.4
2015* 2.5 2.3 to 2.7
*YTD as of 2-28-15 & GDP estimate



Three strike, Yerrrrrrr.. OUT!

baseball umpire calling S&P 500 out

S&P 500 your out!

Investors deciding whether to buy, sell or simply stand pat in this market face three near-term challenges:

Strike 1. A weakening economy that may see first-quarter gross domestic product grow by less than 1 %.

Full-year 2015 GDP projections by economists fell from a range of 2.6% to 3.0% in December 2014 to 2.3 % to 2.7 % this March week following comments from Federal Reserve.  Core inflation which excludes food and energy prices dropped from an expected 1.5 % to 1.8 % range to the new range of 1.3 % to 1.4 %.  Headline inflation which includes energy and food the total inflation rate has declined from a December expectation range of 1.0% to 1.6 % to a range of 0.6 % to 0.8 %.

Strike 2. Deteriorating corporate earnings that could see an annualized profit loss on the S&P 500 for 2015.

According to S&P Capital IQ the S&P 500 is expected to show just 0.3 percent profit growth for the full year and down from an expected 8.6 percent  prediction as recently as Dec. 1.

Most would agree that the S&P 500’s rally off the March 2009 low was, and still is,  largely driven by the extreme easing measures from the Federal Reserve. Should business earnings flatten or modestly decline, as they now  appear to be doing, further stock market gains would prove hard to achieve at best.

Strike 3.  The Federal Reserve is expected to tighten monetary policy at a time when central banks around the world are loosening theirs. This has lead to a strong US dollar.

According to Bank of America the dollar is set for its strongest quarterly strengthening since 1992,  due in large part from  the market’s expectation that the Federal Reserve will increase interest some time in the second half of this year. The US rates being now far higher than those of European nations or Japan will cause the dollar to get stronger as investors buying US bonds a better deal over those offered by other nations.

Take home message

Time for more investors to be selective before they swing away on their next stock purchase .


Cox, J. 2015 There’s a huge sentiment split building in market.  CNBC

 Annualized Growth Rates of the S&P500

GDP Growth (annual %)

Cox J. 2015 Fed removes ‘patient’ but says no April hike coming

strong dollar and crowed trade

The Crowded Trade: Complacency Before the Fall

According to Bank of America the dollar is set for its strongest quarterly strengthening since 1992. This is due in large part to the market’s expectation that the Federal Reserve will increase interest rates in June and a current belief that there is no investment alternative or “TINA” to the US market. The result is a higher demand for dollar-denominated investments and an unintended creation of the crowded trade.

Nature of the crowded trade

A crowed trade occurs when the vast preponderance of investors are so convinced in this ‘herd logic’ that they see no need to worry or question their current positions. This complacent trader’s typical response to any misgivings such as “The US stock market is overvalued …is…Yes but you said the same thing last year, and look the market is much higher now.”  Complacent investors are slow to change but as in prior crowded trades things generally end badly and for reasons that were unanticipated.

Trying  to catch a falling knife

Crowded trades begin to unwind when a large investor suddenly realizes that their positions are way overvalued and fearing that they must act before others, break ranks and sells their investments. The subsequent shock to the stock price begins to challenge the confidence of complacent investors, who only held these stock positions because everyone else did.  As more investors wake up to the realization of this misplaced strategy and try to sell at same time, things deteriorate rapidly and stock prices drop sharply.

How could our present “crowded trade” in US stocks fall apart?

It could be as simple as the sudden realization that exports do matter. Even in a consumer-based economy (1) the strong dollar has caused shrinkage in exports that impacted not only multinationals, but also will their US suppliers. The result will soon be weaken job growth or and less consumer spending.

Take home message

As astute investors recognize an increasing risk in US investments,  we could soon see a spiraling cycle of falling stock prices that beget more selling and further stock price drops.