The S&P 500 (^GSPC -0.11%) has set new all-time records 25 times so far in 2014, building on the 45 record highs it set last year. With the S&P having closed above 1,985 Thursday, many investors are starting to look at the 2,000 mark as easily within reach as the bull market in stocks rages on. For the S&P, the milestone would mark a rare event, as the first time the index climbed above the 1,000 level happened more than 16 years ago. Since then, several stocks have posted extraordinary gains to lift the S&P higher, but others have held the index back. Among the worst offenders are AIG (AIG -0.05%), Citigroup (C -0.53%), and Xerox (XRX).
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For both AIG and Citigroup, the financial crisis was the cause of their respective downfalls. In the mid-2000s, AIG looked like it had limitless growth potential, with a seemingly solid insurance business and opportunities to expand into growing emerging markets and other areas in which insurance products were underutilized. Yet AIG chose to diversify into other areas of the financial-services industry, choosing to take on extensive amounts of leverage at what turned out to be exactly the wrong time. With too much exposure to collateralized debt obligations when the liquidity crisis struck, AIG proved unable to get the capital it needed to survive from private sources, instead relying on a massive government bailout that included giving the U.S. government an 80% stake in the insurer. AIG has recovered sharply from its 2008 and 2009 lows, but shareholders have still been saddled with the long-term impact of dilution.
Citigroup's story wasn't quite as dire but has still had a lasting impression on long-term shareholders, who have lost more than 70% of their money. Citigroup's portfolio of residential mortgages and commercial real estate loans were just part of the risky assets that led to huge losses during the financial crisis, with auction-rate securities and other leveraged loans also playing a key role. The government's bailout of Citigroup included guarantees on toxic assets and direct injections of capital through a preferred-stock investment. Unlike at AIG, where the government sought to get new management, Citigroup was able to keep its leadership intact. In the interim, Citigroup has had some success getting back to normal, although even now, it has lagged behind its peers in being forced to keep its quarterly dividend at just a penny per share.
Xerox, on the other hand, suffered its big crash shortly after the S&P first hit 1,000. For decades, the company had defined the copier industry, with high-priced premium office equipment that carried the best-known name in the business. Yet by the late 1990s, the rise of new technologies like affordable desktop printers and electronic mail had substantially reduced the need for traditional copiers, and Xerox made internal mistakes in trying to restructure its business. Xerox has recast itself as a digital document business but also has further information-technology specialties in the health-care and pharmaceutical arenas. Nevertheless, Xerox stock remains down more than 60% in the past 16 years, needing a much bigger turnaround to regain its former dominance.
As the S&P reaches toward a new milestone, not every stock in the index has contributed positively. Nevertheless, AIG, Citigroup, and Xerox are all still around, and they hope to put their troubled pasts behind them and move forward to reward investors in the long run.
