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I S&P 500 It has long been the gold standard for stock market returns. This blue-chip index, which tracks the performance of the 500 largest publicly traded companies in the US, has returned just over 10% on average since its inception in 1957.
Over the past 10 years, however, annual returns have been slower than that (around 12%). With reinvested profits, it's over 13%! That's an amazing return, defying inflation!
This run of form is not guaranteed to continue. But if the index also returned 12%, then a £1,000 investment today would be worth £29,959 after 30 years (discounting any platform fees and currency fluctuations). That depends on the incredible power of integration.
So, should I invest a lot in the index this month?
Echoes of the past?
My concern here is that the S&P 500 is up 20% this year and, at 5,751 points, is close to an all-time high. This is driven by stocks like the artificial intelligence (AI) chipmaker Nvidia (up to 154%).
While I wouldn't bet against it hitting 6,000 before 2025, the index's P/E ratio is now approaching 30, which is above its historical average. I am worried about this high rating.
On top of this, I just read that the S&P 500 is having its best year since 1997. Looking back, we know what was just around the corner not long after that – a massive tech market crash!
Could the same be true of the AI stocks that drove the market forward? We don't know, but it makes me hesitant to invest a lot of money in the index right now.
As Mark Twain (supposedly) said: “History does not repeat itself, but it rhymes.” This can be true in the stock market.
Fund management FOMO
According to the Financial Times, UBS analysts estimate that Nvidia alone accounted for 1.43% of the year-to-date underperformance of 2.1%. In other words, those who do not hold producer stocks have struggled to keep up with the S&P 500's return this year.
The beauty of being a long-term stock picker is that I can be patient. I'm not necessarily chasing S&P 500 rallies or popular stocks.
A small fry that is not popular
So, this month, I will continue to hunt for small UK stocks. Unlike the S&P 500, these market-cap minnows are still very popular.
One stock I'm thinking of adding to The wind (LSE: WNWD). This is a small software company that uses an AI-powered platform that uses predictive analytics to manage risks on the high seas.
Shares are down 23% in the last month, which I think is connected to where the company is based (Israel). Clearly, the wider conflict in the Middle East presents risks.
In return, this situation also leads to major headaches for shipping companies, especially along major waterways such as the Red Sea and the Gulf of Oman. Windward's focus on maritime intelligence and risk management, including tools for monitoring war-prone areas, appears to be more effective than ever.
In H1, revenue jumped 37% year-on-year to $17.6m, with new commercial contracts won and losses shrinking. Its blue-chip clients are already consolidating BP, A shelland Interpol. At 124p, I think the stock could outperform the S&P 500.
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