What’s Really Driving Stock Market Wealth?

Why investors should consider a shift from growth to value as equity valuation skyrockets

Since March of 2009, investors have become accustomed to owning equities passively and cheaply. But the ever-rising stock market has been accompanied by a rise in both correlation and valuation.

Savvy investors, who know from experience that no bull market lasts forever, are looking for different ways to be prepared when this one ends.

Returns run amok

It’s clear that equity investors have experienced outsized returns since the end of the credit crisis. The S&P 500 has compounded at 18.22% per year since 2009, far ahead of its 80-year average of 10.43%.

The reasons for this outsized performance could be a result of several different, yet related, fundamental drivers:

1.  Quantitative Easing (QE): as the U.S. Federal Reserve (Fed) bought trillions of dollars in government bonds, long-term interest rates fell.

2.  Low interest rates: As the Fed lowered long-term rates nearly to zero, short-term interest rates fell, too.

3.  Stock buybacks: Corporations took advantage of these lower interest rates and refinanced their corporate debt. This enabled them to free up cash to fund massive stock buybacks. S&P 500 companies have bought back over $500 billion of their own stock in the last 12 months and a total of $2.1 trillion since 2010.

As these factors snowballed, stock prices have essentially risen in tandem with the expansion of the Fed’s balance sheet.

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Dynamic Wealth Research was founded on the principle the world is changing at an ever-increasing pace.  The greatest profit opportunities an investor will ever find are from massive, sweeping changes. Dynamic Wealth Research analyzes and closely follows these changes, keeps its readers on the leading edge of them, and shows you how to be best positioned these anxious, interesting, and ultimately profitable times.