Must-know: Many investors fear stocks—is this good for markets?

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The economy and the stock market are no longer depressed, yet the share of U.S. adults who own stocks remains at multi-year lows. Russ explains why investors haven’t yet fully embraced equities and what this could mean for longer-term stock market performance.

Despite last week’s losses, stocks are still having a good year – in fact, they’ve been having a good five years. During the bull market of the last five years, U.S. stocks, as measured by the S&P 500, have generated total returns of 233%. So, you would think most investors would be embracing equities.

US markets in uptrend

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Market Realist – The above graph shows the performance of the S&P 500 (SPY) for large cap equities, the S&P 400 for mid-cap stocks (or MDY), and the S&P 600 for small cap stocks (IWM) in the past five years. All the segments have grown. Small cap stocks had a particularly good run. They kept climbing until March. Then, they fell because of concerns about normalizing volatility and overvaluation.

Sector wise returns

Market Realist – The graph above shows the performance of the S&P 500 (or IVV) by sector. All the sectors have given returns of more than 10% in the last five years.

Currently, the S&P 500 is giving year-to-date (or YTD) returns of more than 8%. It posted gains for seven consecutive quarters. According to Bloomberg estimates, the S&P 500 Index (SPY) closed at a new high 34 times in 2014. The latest record close was at 2,011.3 on September 18, 2014. The Dow Jones (DIA) also closed at a new high 17 times in 2014. The latest record close was at 17,265.99 on September 18, 2014.

In the quarter ending September 30, 2014, healthcare (or XLV) and technology stocks (XLK) drove the S&P 500. In contrast, the energy (or XLE) and utilities (XLU) sectors dragged it down.

To date, it has performed well despite the rising geopolitical tensions, concerns about overvalued markets, the slowdown in the Eurozone, Japan and China, and concerns about the Fed hiking rates sooner-than-expected.

Continue reading the next part of the series to understand why many investors are on the market sidelines, despite the five-year rally.

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