|
The last trading day of 2009 was a weak one at best with all indices down more than 1%. However, the volume was so light the predominant price/volume relationship was irrelevant. That means nothing more than we should not make any investment decision based on what the markets did that day.
The first few days of 2010 have been positive for markets and our forecast shows potential for more upside. Just a week ago, we were getting no buy signals. Now, we are starting to see a few again. The first trading day of the New Year saw a quick run up with the Dow eventually finishing just under 10,600, which is about where it ended the week.
The unemployment rate held steady at 10% last month after revisions for November actually showed a seasonally-adjusted gain of 4,000 jobs. An alternative gauge which includes discouraged workers and those forced to work part-time rose from to 17.3% from 17.2% last month. Yet another survey showed 1 in 5 men over the age of 18 in the U.S. who could be working are not able to find employment. That is the worst reading that index has achieved since it was created by the Department of Labor in 1946.
Pending home sales plummeted 16% in November following the extension of the new home-buyer's tax credit program as potential buyers, no longer worried about losing that tax credit took a step back. I seem to remember mentioning something about not trusting strength in areas of the economy directly influenced by government programs in last month's commentary.
To quickly summarize the past twelve months...following a gut-wrenching drop, which ended in early March, the markets roared back to finish the year solidly higher. The headlines since the end of the year are quick to point out encouraging data points like "best year for stocks since 2003," and it was, but I believe it always helps to look at these things in a slightly broader context. The S&P 500 finished 2003 at 1,112 after gaining 26%...very similar to what it did in 2009, but also indicating no real, net change in the indices since the end of 2003, which would in fact be a loss after adjusting for inflation.
The ugly truth in the historical data the press isn't so eager to share is a comparison with calendar year 2008, in which the S&P closed at 1,166 (higher than it is today) after losing 38.5%.
So, how did the first decade of this century turn out for stocks? The short answer is, "terribly." Depending on whether or not you adjust for inflation, this was either the worst, or second worst decade for stocks going all the way back to the 1820s. Through December 21st, 2009, inflation-adjusted returns for stocks during since 2000 averaged an annualized -3.4%. This follows the 1990s, one of the best decades for stocks in history, whereby the same measure saw stocks returns of 14.8% on average each year.
Does this put the final nail in Buy and Hold's coffin? Probably not, but the last ten years has certainly taken its toll. Given the above data, the optimistic investor might conclude things just have to get better following a decade of such miserable performance, but not so fast...the fact that the S&P 500 is almost 25% above its historical average P/E ratio argues against that, unless the optimist is also anticipating another massive stock bubble.
What else can we look forward to in 2010? I expect we'll see continued high unemployment, at least for a few months. The Fed may start increasing interest rates if inflation, which to this point has stayed very quiet, begins to heat up. Oil and energy prices creeping higher may help that.
We will probably see at least one more round of stimulus spending...it is an election year after all, and our congress critters seeking re-election are going to have to come up with some big sweeteners to go along with the inevitable discussions of higher taxes to pay for all this increased spending.
Many economists, including recent (2008) Nobel Prize winner Paul Krugman are calling for more stimulus spending as the only way to achieve economic recovery and job growth. I still don't see how more government spending and more debt fixes this, but my point of view is at odds with those whose hands are on the levers at this point so we'll just have to wait and see how things work out. I still maintain the government does not create any wealth, and can only spend that which is borrowed or taken from someone who earns it.
For the near-term, I expect the stock markets to remain high-strung, and susceptible to overreactions to any major news or events that occur. As congress moves from healthcare reform to banking and investment regulation and oversight we can expect some wild moves in those areas of the market.
Quickly, I have a couple of interesting points with respect to US auto manufacturers. Ford saw December sales increase 33%. GM December sales declined just over 6%. Further, recent surveys are showing Ford vehicles approaching, if not equaling import manufacturer's levels of customer satisfaction and quality...both areas in which GM is still lagging. Which one of these two companies did our government recently "save?"
Here's to a happier, healthier and more-prosperous New Year! No matter what happens, it will certainly be one full of opportunity. |
