Given such a strong run, and considering that we have not experienced a correction (a price decline in excess of 10%) in more than a year, many investors may be getting a bit wary. After all, the average annualized return for U.S. large cap stocks over the past twenty years is only 7.5%. But in our opinion, a strategy of relying on these types of mathematical averages is a little fuzzy, as markets seldom act average. In fact, calendar year stock returns are usually anything but average.
Fooled by Averages
Stocks are off to a fast start in 2016. Gains in each of the first two months have propelled the S&P 500 to an early 6% year-to-date return. The gains are even more impressive going back to November’s election—the S&P 500 is up nearly 12% since then and regularly hitting new record highs.