Picture Edition: Major Asset Class Returns From The 2009 Bottom

by on September 12, 2013 | ETFs Mentioned:

The U.S. bull market rages on five years after the collapse of Lehman Brothers, although not everyone on Wall Street is convinced that we’re out of the woods just yet. The stock markets’ stellar run-up since the March 2009 bottom is undeniably encouraging, but stagnant growth in the domestic labor market coupled with a lackluster outlook for Europe and China has left many questioning the health of the global economic recovery [see Visual Guide To Major Index returns by Year].

In light of recent talks of the Fed starting to scale back on stimulus, many have started to ponder about re-allocating their portfolios given the impressive gains seen on Wall Street in recent years; furthermore, the expectation of rising interest rates has only made it more difficult to pinpoint the opportune time to lock-in profits. As such, we’re taking a stroll down memory lane and taking a look at how nine major asset classes fave fared since the depths of the housing bubble burst [see The Complete Visual History of SPY].

Please note that all of the charts below are based on monthly returns, using adjusted closing prices, starting from January 2009 up until September 1st of this year:

 

U.S. stocks, as represented by State Street’s SPY (SPY, A), have turned in the best performance in the equity universe since the market bottom, gaining upwards of 120% over the last four years. Emerging markets, as represented by Vanguard’s VWO (VWO, A), boasted a commanding lead through 2011; however, recent concerns about Chinas’s slowing growth have taken their toll on investors’ confidence as evidenced by the steep sell-off seen in VWO earlier this year [see our Euro-Free Europe ETFdb Portfolio].

Lastly, developed markets, as represented by iShare’s EFA (EFA, A), have also fared quite well, although this asset class has largely lagged behind thanks to anemic global growth and grim prospects surrounding the eurozone.

Bond prices have risen across the board as well, with “junk bonds,” as represented by iShare’s HYG (HYG, A), taking the lead right from the start. Investors have been prompted to move down the credit quality spectrum in search of finding meaningful sources of current income amid the historically ultra-low rate environment; as a result, investment grade corporate bonds and long-term Treasuries, as represented by iShare’s LQD (LQD, A) and TLT (TLT, B-), respectively, have underperformed their higher-yielding counterpart.

The recent decline in Treasuries is also indicative of the changing market cycle. More specifically, we are seeing a rotation out of fixed-rate debt securities and into cyclical equity sectors like industrials and technology  [see 101 High Yielding ETFs For Every Dividend Investor].

Gold, as represented by State Street’s GLD (GLD, A-), was undeniably one of the biggest beneficiaries of the Fed’s quantitative easing initiative; fears that “free money” would lead to hyperinflation bolstered gold prices higher, but recent talks of scaling back bond-repurchases have reminded investors that inflation has yet to resurface. Commodity prices, as represented by PowerShares’ DBC (DBC, A), also enjoyed a steady rebound once the dust settled on Wall Street; however, commodity prices have broadly moved sideways and lower over the past year as slowing growth in China has subdued demand for natural resources across the board [see 3 Market Valuation Indicators ETF Investors Must Know]. 

Not surprisingly, the Fed’s “easy” monetary policy has been sinking the U.S. dollar, as represented by PowerShares’ UUP (UUP, A). It’s worth noting that UUP has been inching higher in 2013 as the anticipation of rising interest rates has fundamentally boosted the greenback’s value in the currency market. 

The Bottom Line

U.S. stocks are on fire and the bull train doesn’t appear to be showing signs of slowing down any time soon. It appears as if market participants are finally realizing that the Fed cutting back on stimulus means the economy is doing well enough on its own. Nonetheless, recent talks of a taper have ignited a massive sell-off in the bond market, and many believe this is the start of a bear trend in the fixed income universe. The biggest takeaway here is that equity asset classes continue to soar to all-time highs while bonds have started to turn lower; the next question to ask is how to distinguish between a stock market correction and the beginning of a bear market.

Follow me on Twitter @SBojinov

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Disclosure: No positions at time of writing.