S&P 500 Index Return Analysis

The S&P 500 Index is the best barometer of the US stock markets and is widely followed by investors worldwide. It contains the 500 leading companies in leading industries of the economy. The year to date (as of February end) performance of this index and the individual sectors within the index are shown below:


The S&P 500 is down year-to-date 18.62%. But on a total return basis it is down 18.18%. Total Return(TR) is the price plus gross cash dividend return. Financials is the worst performing sector with a loss of 40.07% followed by Industrials at 28.34%. Last year the financials were off an incredible 56.95%. While health care and consumer staples are expected to perform better during recessions they are not the top performers. The best performing sector YTD is Information Technology. This is very surprising since during economic downturns companies cut back on new IT investments. Besides IT is never really considered a stable sector. Overall usual suspects utilities, healthcare, telecom and consumer staples have held up relatively well with losses of about 14%.

The yearly return of the S&P 500 is shown below:


Last year the index dropped 37% (TR). Out of that dividends contributed -4.01%. The dividend component was 1.49% of the return of -38.49%. Hence last year dividend yield on the S&P 500 was less than 2%. Compared to 2007, the 2008 dividend yield is less since some companies reduced or suspended dividends last year.

During the years 1995 thru 1999, the index yielded double digit returns each year.As seen from the table above, S&P index fell much lesser than 38% even when the dot com bubble burst. With the S&P 500 currently at 735, some bears are projecting a fall to 500 levels if the recession deepens.

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