In this podcast, David Blitzer, the Managing Director and Chairman of the Standard and Poor's Index Committee, discusses why looking back at the more than 50 year history of the S&P 500 can give us insight into the trends that move markets today.
As Blitzer puts it, most investors would never have told you in 2006 that any of what would follow over the next four years was even possible. Given that the credit crisis and subsequent events took everyone by surprise, how can looking at history show us whether in fact, it should have?
Highlights from our episode:
One of the most interesting things to look at in the history of the S&P 500 is the volatility of the index; in the period in between 1929 and the late 1930s, 10% daily swings weren't unusual yet we rarely see volatility like that now, even during the credit crisis 10% swings were uncommon
The S&P 500, being U.S. focused, actually tells us more about the global economy in the past than it does today; consider that U.S. equities currently represent 40% of global market equity value, but historically, U.S. equities were even more dominant, representing more than 2/3 of the global equity market in the 1970s
In 1965, financial companies comprised just 1% of the S&P 500, by 2006 this had grown to more than 20%, now it is only 16%
A further note on financials: No sector achieves more than 20% of the index if it is not consistently outperforming and if there's one thing a trend of outperforming tells you, it's that that trend must have an end point --- true to form, after the financial meltdown of the late 2000s, the financial sector now represents only 16% of the index
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