The Typical Return on Blue-Chip Stocks
- Blue-chip stocks typically have strong underlying fundamentals, such as strong revenue and profit growth. Blue-chip companies usually have several subsidiaries operating in many different countries worldwide. The stocks tend to be liquid because there is always significant investor interest. Some of these stocks also pay dividends, which are cash distributions to shareholders from after-tax earnings.
- The Dow Jones index tracks 30 large blue-chip companies, while the S&P 500 is a broader index that tracks 500 large U.S. companies. The Dow index rose from about 9,000 in September 2001 to about 11,500 in September 2011, or about 27 percent in that 10-year period. It reached a low of about 7,000 in early 2009 after the 2008 financial crisis, but rebounded to about 12,500 by early 2011 before retreating during the year. Over the same 10-year period, the S&P 500 rose from about 1,040 to 1,200, or about 15 percent. It touched a low of about 735 in February 2009 following the 2008 financial crisis. U.S. blue-chip stock returns may lag other returns because smaller companies often grow faster and certain regions of the world have seen rapid growth.
- International blue-chip stocks trade on major European and Asian stock exchanges. The Euro Stoxx 50 index tracks 50 large companies operating in the eurozone countries. It peaked at around 5,500 in 2000 and fell to around 1,800 in early March 2009 after the 2008 financial crisis. Over the 10-year period from September 2001 to September 2011, the index has declined from about 3,450 to about 2,100, or roughly 39 percent. Other blue-chip indexes include the FTSE 100, which tracks British blue-chip stocks, and the Nikkei 225, which tracks Japanese blue-chip stocks.
- Changes in the global financial markets have affected blue-chip stock returns since the mid-1990s. Hedge funds, private-equity funds and others can seek out attractive returns in stocks, derivatives and other securities. They do not have to restrict their investments to blue-chip stocks. Therefore, the blue chips must compete with other stocks for investor attention. Hedge funds and private-equity funds often favor smaller stocks, in which they can take controlling positions and influence operations to generate a higher return on investment.
- Blue-chip stocks are not immune to recessions and market downturns. Large companies might have difficulty adapting to sudden changes in business conditions because they tend to have complex management structures with multiple layers of decision-making.
