Coincidentally or not, the S&P 500’s weakest bull-market gain in the the past five decades occurred during that period, 1974 to 1980, when wage growth was fastest: 7.5 percent a year. With inflation running at an annualized rate of 8.9 percent, the Fed raised interest rates to as high as 20 percent.
In the latest advance, U.S. companies increased earnings 15 percent a year while sales rose 5 percent. As the Fed reduced borrowing costs to record lows, the S&P 500 has rallied 206 percent in six years, roughly matching the average annualized gain in the last seven bull markets. Wage growth, on the other hand, has happened at about half the median rate.
Bigger gains in stocks haven’t done much to lure investors, who are sending 68 times as much money to fixed income markets than equities. Mutual and exchange-traded funds that hold U.S. shares have attracted $18 billion since March 2009, compared with $1.2 trillion that went to bonds, data compiled by Bloomberg and Investment Company Institute show.
“It’s been a huge opportunity cost if you have not been in equities,” said Joe Quinlan, New York-based chief market strategist at U.S. Trust, which oversees about $387 billion. “People worried about their jobs, they had to pay their mortgages. There are a lot of reasons for investors to be risk averse.”