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You Are Living in a Low-Return Environment

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Russ discusses why the bull market has stumbled, but that doesn’t mean we are headed towards a bear market.

Stocks suffered a horrific sell-off [Friday June 24th] following the surprise vote by the UK to exit the European Union. But even before the Brexit vote, stocks had been losing steam. U.S. large cap stocks have now gone well over a year without making a new high. The S&P 500 is trading right where it was in the fall of 2014. Small cap stocks have performed even worse. The Russell 2000 bounced sharply off of the February lows, but small caps remain roughly 10% below their 2015 peak.

What happened to the bull market? Three trends help answer that question.

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Market Realist – Unattractive returns

Equities slumped worldwide after the shocking decision by the United Kingdom to leave the European Union. However, equities in the United States (IVV) had already become directionless prior to the Brexit vote. This came after volatility ruled the Market during the initial months of the year.

However, some of the recent economic indicators such as robust private-sector employment data and a drop in jobless claims could calm the Market to a large extent.

Weak performance

The Market, as represented by the S&P 500 (SPY), has risen a mere 2.6% YTD (year-to-date). The Dow Jones Industrial Average is up 2.7%. The Russell 2000 Index (IWM), a small-cap index of the bottom 2,000 stocks in the Russell 3000 Index, was the worst performer with a YTD gain of 1.2%.

For the last two years, the Market has been trading in a very narrow band of around 250 points. Currently, the S&P 500 is trading at around 2,098 points, almost at the same level as November 2014. The Russell 2000 index fell to 954 in February 2016, the lowest level in almost three years. Since then, the index has risen nearly 21%.

On the other hand, the NASDAQ has fallen 2.8% this year. It’s home to some of the world’s most valuable technology stocks such as Facebook (FB), Amazon (AMZN), Netflix (NFLX), Alphabet (GOOGL), and Apple (AAPL). We’re definitely living in a low-return environment.

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