Fisher Investments Reviews Whether Stocks Can Keep Rising in 2024

Transcript

Ken Fisher:

Another question that I'm asked, particularly at a time like this, is we're in the middle of the year, the S&P is up 12% , global stocks are up similar amounts. Has the market, have stocks come too far too fast? Or said another way, are they over their skis? Are they ahead of themselves? Does that not imply a bad or worser or low return back half of the year. And the reality is that this kind of a view. Is one that misses a central point. And it's easy to see why people might have that fear.

Stocks in America, going back to the beginning of accurate daily pricing in 1925, have 10% average annual returns in history. So if stocks have done 10% average annual and we're already up 12 in the year, isn't that a bad thing? You can see why that fits in neatly into someone's thinking. That kind of, I get it. But it's, I think, the wrong way to think about it. Let me take you through some other points. The fact is, and I say this in this way quite commonly, average returns are not normal. Normal annual returns are extreme.

The 10% average is made up of an average of mostly high high returns compared to the average and a small number of negatives. The range between, let's say, 5 and 15%  average annual returns. That have actually occurred in history is only 17% of the years. The reality is fully twice that are the number of years that are over 20% returns. Let me put that into perspective for you a different way.

These extreme returns of some negatives and very high positives creating an average of 10% makes the average, in a sense for you, misleading as to what's most likely to happen in a given year statistically.

Said another way. This large number of 20% positives dwarfs the six times they've ever been below 20% negatives. Said otherwise, and this seems like what I'm about to say, Just seems like it's an oh, duh, you got to be stupid to even say these words coming out of your mouth, Fisher, but it makes a huge difference in what kind of returns you would expect, whether you're in a bull market or a bear market, you know that.

But what you don't stop to think about, what most people don't stop to think about is kind of like, okay. If I'm in a bull market, maybe what kind of return should I expect? Versus if I'm in a bear market, what kind of returns should I expect?

And the fact of the matter is that simply that when you're in a bull market, going back to all those bull markets since the beginning of accurate, precisely accurate data for the S&P 500, average annual return in bull markets is 23% . Now I'm just going to give you another point that I've said so often. So often. Once a market that's had a bear market has hit a bottom and gotten to become one year old, it almost always gets to be two years old. We're in that second year now from the bottom in October of 2022. And therefore being in a bull market, an average return in a bull market might be on the high side of 20% .

Bull markets just have much higher returns than bear markets. Intuitively, you know that. But people don't think about, oh, logically, it's a bull market. Logically, we should be up quite a lot and therefore, like we were last year, and logically therefore being up 12% more or less going into halfway through the year shouldn't seem like it's ahead of itself. On top, in front of its skis, too far, too fast, it should actually seem pretty normal. This kind of a year in a bull market is not abnormal. It's actually stunningly normal. Thank you for listening to me. I hope you found this useful.

Voice of Ken Fisher:

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