-
Despite the turmoil of the COVID pandemic, the S&P 500 had an annualized return of 14.43% the past 5 years.
-
Several ETF sectors have topped the S&P 500 on an annualized basis over the same time period.
-
Cryptocurrency ETFs led the way, with one fund up more than 50%. Here are other ETF sectors worth a look.
The past five years have been crucial for global markets as we navigated the COVID-era market shock, global monetary policy easing, and the launch of fiscal stimuli, followed by subsequent market recovery and the winding down of those stimuli. These years also witnessed the rise of inflation concerns and the resulting interest rate hikes in several countries.
As if these challenges were not enough, geopolitical tensions spiked in the Middle East and Eastern Europe. The United States has also experienced the same flow of events, with its key equity index, the S&P 500, delivering an annualized return of 14.43% over the past five years, as evidenced by the performance of the SPDR S&P 500 ETF Trust SPY.
The onset of the COVID-19 pandemic in early 2020 led to an unprecedented market crash. The S&P 500 lost more than 30% of its value in just a few weeks as lockdowns, supply-chain disruptions and plummeting consumer confidence weighed heavily on the global economy. Central banks and governments around the world responded swiftly with aggressive monetary and fiscal policies to stabilize markets and support economic activity.
In the United States, the Federal Reserve slashed interest rates to near zero and launched massive asset purchase programs, injecting liquidity into the financial system. Simultaneously, the federal government rolled out trillions of dollars in fiscal stimulus, including direct payments to households, enhanced unemployment benefits, and support for businesses. These measures not only prevented a prolonged economic downturn but also set the stage for a rapid market recovery.
Following the initial shock, markets began a remarkable rebound, with the S&P 500 reaching new highs by the end of 2020. However, the recovery was uneven, favoring certain sectors and asset classes over others. As the pandemic reshaped consumer behavior, technology adoption accelerated, supply chains evolved, and new investment themes emerged.
Due to massive policy easing amid the pandemic and pent-up demand post pandemic, U.S. inflation hit a 40-year high. We thus saw a hawkish Fed in 2022. Heightened rising rate worries amid super-hawkish cues from the Fed even bummed Wall Street in that year. However, back-to-back rate hikes helped the U.S. inflation cool down and the Fed started to cut rates all over again from September 2024. The year 2024 witnessed the total number of cuts in interest rates to 100 bps.
