Low Gas Prices Could Fuel Growth
Chart of the Week for December 7-13, 2001
The S&P 500 Index is heading into territory not seen in more than 25 years: back-to-back losing years. According to Professor Jeremy Siegel of the University of Pennsylvania’s Wharton School, stocks have posted losses in consecutive years only eight times over the last 200 years, or every 25 years on average. Typically, markets recover during the third year, averaging 18.8%, even including 1931’s exceptional loss. Beyond the third year, stocks generally revert to their historical average of 11.5%, though not always. What kind of rebound, if any, we see in 2002 is open for debate, but comparing the market’s current P/E ratio (24x) to its historical P/E ratio (15×) leads some to believe the market is still richly valued and that a recovery will be muted. Regardless of what happens next year, investors should keep their expectations in check and their portfolios allocated appropriately considering both time horizon and risk tolerance.
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