S&P at 2,000 .. what's next

[ulrichw]

[...] I tried looking at the graph that Yahoo finance plots, but because of recent data, everything before around 1995 or so just looks flat. [...]
So I'd guess that, overall, a 25% drop in the S&P is a relatively uncommon occurrence?

The best way to view long-term stock charts, IMO, is to use a log scale for the vertical axis.

When plotted against a log scale, a given percentage drop (e.g., 25%) will always be the same height on the chart.

Here's what the S&P 500 looks like against a log scale:

An even better version of this would factor in inflation, so here is the same data adjusted to "real" dollars (2013 dollars) - note the impact of the high inflation years:

And finally, for another slice at the data, I thought it would be interesting to plot the S&P 500 against GNP (data only available since 1929). (Shiller, who provided some of the source data for these charts, uses PE10 as an indicator, but I thought GNP is another expression of the strength behind the prices, because GNP represents opportunities for expansions of market share, for example):

Source data from Robert Shiller (historical S&P values, and CPI): Online Data - Robert Shiller
and FRED (GNP data): Federal Reserve Economic Data - FRED - St. Louis Fed

 

[Lsbcal]

Do care but don't know.

So I went with my hope ... 2500.

 

[ejman]

Thank you UlrichW for those charts. It's interesting to see that the inflation adjusted S&P number from 1904 to about 1960 or so shows basically no growth (except for the very brief peak in 1929). Of course, dividends were far higher back then. Nonetheless, It's a miracle that most of us ER types that do mostly equities are actually able to retire but looking at the chart, this is only because the equities environment has been so benign after 1980 or so and here I thought I was a moderately competent investor!

 

[unclemick]

Love the charts. I picked higher - but being a Saint's fan since 1974 made me a cock-a-may-me optimist.

Heh heh heh -

 

[ripper1]

Love the charts. I picked higher - but being a Saint's fan since 1974 made me a cock-a-may-me optimist.

Heh heh heh -

who gonna beat dem Saints!

 

[FUEGO]

Thank you UlrichW for those charts. It's interesting to see that the inflation adjusted S&P number from 1904 to about 1960 or so shows basically no growth (except for the very brief peak in 1929). Of course, dividends were far higher back then. Nonetheless, It's a miracle that most of us ER types that do mostly equities are actually able to retire but looking at the chart, this is only because the equities environment has been so benign after 1980 or so and here I thought I was a moderately competent investor!

1904 to 1960 looks pretty decent for the average (index) investor. With an average dividend yield of 5.4% over that time period, it would easily support a 4% withdrawal rate adjusted for inflation. In fact the dividend per S&P 500 index "share" increased from a little over $8 to over $15 per share between 1904 and 1960, so just living off dividends would leave the 1904 early retiree with almost double the purchasing power if they survived the five and a half decades to 1960. The early 20's would have been rough but otherwise a decent series of returns.

 

[ejman]

1904 to 1960 looks pretty decent for the average (index) investor. With an average dividend yield of 5.4% over that time period, it would easily support a 4% withdrawal rate adjusted for inflation. In fact the dividend per S&P 500 index "share" increased from a little over $8 to over $15 per share between 1904 and 1960, so just living off dividends would leave the 1904 early retiree with almost double the purchasing power if they survived the five and a half decades to 1960. The early 20's would have been rough but otherwise a decent series of returns.

Thanks for the data point on the actual level of dividend yield during that period. I knew that dividends then were quite a bit higher than now but didn't know the actual extent. It seems that either dividends or capital appreciation eventually save the bacon.

 

[FUEGO]

Thanks for the data point on the actual level of dividend yield during that period. I knew that dividends then were quite a bit higher than now but didn't know the actual extent. It seems that either dividends or capital appreciation eventually save the bacon.

I was a little surprised at just how high they were, too. I pulled the SP data from the Shiller data sets (linked in this thread, above with all the pretty graphs).

 

[rayvt]

Historically, I wonder how often the S&P sees a 25% or greater drop, before taking an upward turn again?
So I'd guess that, overall, a 25% drop in the S&P is a relatively uncommon occurrence?

3%.

3% of the rolling 12-month periods beginning Jan 1950 to Jan 2013 the S&P500 had a drop of more than 25%. 21 of the 744 periods.

Of course, after every single one of them the market went up.

The first one was May'69 to May'70. The last was Jun'08 to Jun'09.

Of course, these are the rolling 12-month periods, so the losses tend to come in clusters. Every period from Oct'07 to Jun'08 was a 25% year-year loss.

Eyeballing, I count 6 clusters in all.

 

[ejman]

I was a little surprised at just how high they were, too. I pulled the SP data from the Shiller data sets (linked in this thread, above with all the pretty graphs).

Thanks for the source. Under the trust but verify principle I ran the calculation again and 5.3% it is - amazing to see the dividends during the Great Depression ~ 10 % to 13%. I guess If you were crazy enough to buy stocks at that time you sure got paid cash on the barrel head for doing so!

 

[jim584672]

Massively expanding Fed Balance sheet results in sky high asset valuations. Takes tin foil hat off.
It is all rigged?? Just get on the right side of the rig.

 

[sengsational]

No one knows, so that shouldn't really be part of the poll.

I do care, since the first few years of retirement can be the most damaging, as FIRECalc shows.

But I clicked $1,500 since I think it would be real easy to have a 25% fall off at this point in the PE10 range.

Not changing anything with my allocation, though, but would not be surprised at a sell off.