We are coming up on a decade since the Great Recession wiped trillions of dollars off global equity markets and almost 20 years since the Dotcom bubble pushed the Nasdaq higher by 400 percent before collapsing. The 21st century has been a wild ride for investors.
In its latest Flow Show report, Bank of America's colorful quilt of asset class returns puts the 21st century – so far – into the picture, painting the plight of global investors. No matter which asset class investors have been in, they have had ups and downs since 2000. Let's take a look at some trends.
U.S. Stocks Dominated
Despite a horrendous two years through 2007-2008, U.S. equities have dominated in recent years. A flood of stimulus from the Federal Reserve from 2009 to 2013 pushed interest rates lower in the hope investors would ramp up borrowing and spending, lifting growth and overall economic prospects. To some degree that has worked, but it has also pushed investors into stocks and out of bonds.
Of the ten sectors, the S&P 500 has been in the top half each year since 2009 and led the pack in 2013, 2014 and 2015. In 2013, the S&P 500 rose an eye-popping 32.4 percent. While U.S. stocks have surged, emerging market stocks have lagged. The oil crisis and debt scare saw the sector record losses in 2014 and 2015 and return just 1 percent in 2016. During this three-year span, U.S. stocks averaged returns of more than 9 percent. (See also: An Introduction To Emerging Market Bonds.)
Source: Bank of America
Like volatility? Trade commodities
Commodity investors have taken a beating since the financial crisis recording losses five consecutive years from 2011 to 2015, with losses as high as 24.7 percent in 2015 the oil prices crashed to decade lows. On the flip side, commodity investors at the turn of the century fared much better. Average returns between 2000 and 2007 were 13.9 percent with just one year of losses.
Those investors who crave volatility should look at commodities. Since 2000, commodities have been in the top three or bottom three performers for 15 out of 18 years, meaning its often boom or bust for those in the sector.
Cash Tells the Tale
There's no better bellwether of the U.S. economy and monetary policy than cash. Leading up to the financial crisis, returns were respectable, earning at least three percent between 2000 and the financial crisis. The economy was ticking along nicely, inflation was a steading 3-4 percent, and investors were rewarded for taking less risk – even if they had to deal with rising prices.
However, post-crisis, as the Federal Reserve slashed rates in the hope investors would take money out of cash and inject it into the economy returns for conservative investors have plummeted. Since 2009, cash has never returned more than 1 percent on a yearly basis.
Recency bias will paint a bright picture for U.S. equity investors. However, it's been just ten years since the Great Recession emptied the pockets of equity investors, and even the ensuing eight-year bull rally has left some behind, most notably those in Treasuries, commodities, cash, and emerging markets.
Going forward, the rise of cryptocurrency trading may see an 11th class added to this colorful quilt.