View from the Observation Deck

Today's blog post features the cumulative total returns of five major equity indices (three domestic and two foreign) since the start of 2000. We chose to highlight 5-year rolling total returns in an effort to smooth out intra-year volatility introduced by the significant number of challenging global events that transpired since 2000. We update this post on an annual basis. Click here to see the January 2024 version of this post.

Emerging markets equities clearly outperformed in the first decade covered in the table but have lagged the U.S. indices since. In the U.S., large-, mid-, and small-capitalization (cap) stocks have shared the spotlight dating back to 2007, with large-caps (S&P 500 Index) dominating each of the last seven 5-year rolling periods. From our perspective, continued globalization and a dramatically stronger U.S. dollar have been key catalysts to this shift in performance. While it is no secret that U.S. companies generate a significant portion of their revenue from overseas, many investors may not be aware of just how dependent they have become on international sales. Notably, 41.8% of S&P 500 Index revenues were generated outside of the U.S. as of 12/31/24.

Regarding the U.S. dollar: a strong dollar can decrease returns for U.S. investors holding positions in unhedged foreign securities, and vice versa. From 2000-2009, the U.S. Dollar Index declined by 23.57% − a nice tailwind for foreign holdings. From 2010-2019, the same index appreciated by 23.80% − a notable headwind for foreign holdings. During the current decade, spanning 2020-2024, the U.S. Dollar Index surged by 12.55% to 108.49, well above its 20-year average of 89.75.

For additional context, the average annual total returns for each of the five equity indices in today’s table were as follows (12/31/99 – 12/31/24): 9.66% (S&P MidCap 400); 9.50% (S&P SmallCap 600); 7.69% (S&P 500); 5.67% (MSCI Daily TR Net Emerging Markets in USD); and 3.78% (MSCI World ex-U.S.), according to data from Bloomberg.

Takeaway: The returns depicted in today’s table offer a powerful reminder that the buy and hold strategy can still serve investors well. Despite rising geopolitical tensions, wars, government lockdowns, and two bear markets (in the S&P 500 Index), each of the indices in today’s table reflect positive total returns over the most recent 5-year rolling period. While the S&P 500 Index remains a clear outlier, there is no way to predict what indices could outperform next. For those investors with extended time horizons, today’s table may serve as an antidote to an overly myopic outlook regarding their equity holdings.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance. The S&P MidCap 400 Index is a capitalization-weighted index that tracks the mid-range sector of the U.S. stock market. The S&P Small Cap 600 Index is a capitalization-weighted index that tracks U.S. stocks with a small market capitalization. The MSCI World (ex-U.S.) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets excluding the U.S. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies.

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