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Market Commentary
Economic Updates
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Weekly
Commentary
January
4, 2010
The Markets
It seems
hard to believe that it was 10 years ago that we entered the new millennium.
The world has certainly changed over that time.
The last
decade began with the twin shocks of the unwinding of the tech stock bubble and
the terrorist attacks on 9/11. Ironically, the unwinding of another bubble
(housing) and additional terrorist attacks are still with us as we enter a new
decade.
In the stock
market, the 2000s were a disappointment. Stocks traded on the New York Stock
Exchange lost an average of about 0.3% per year including dividends, which made
the 2000s the worst decade in nearly 200 years of record keeping, according to
data compiled by Yale University finance professor William Goetzmann. By
contrast, gold, which was hardly even talked about in 2000, was the
best-performing asset over the decade as it rose an average of more than 14%
per year. During the 1990s, gold lost
an average of 3% per year, according to The
Wall Street Journal. What a difference a decade makes!
On the
bright side, we ended 2009 on a major upswing as the S&P 500 index rose
more than 23% for the year and a staggering 65% from its March 9 low, according
to data from Yahoo! Finance. Treasury securities, by contrast, ended 2009 with
a loss of 3.5%, according to Bloomberg. In 2008, the tables were turned as the
S&P 500 index declined 38% while
Treasuries rose 14%.
What will
the next decade look like? Of course, nobody knows, but it's reasonable to
think that we'll see some surprises - both good and bad. No matter what
happens, we'll be doing our best to grow and protect your assets.
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Data as of
12/31/09
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1-Week
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Y-T-D
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1-Year
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3-Year
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5-Year
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10-Year
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Standard & Poor's 500
(Domestic Stocks)
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-1.0%
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23.5%
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23.5%
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-7.7%
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-1.7%
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-2.7%
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DJ Global ex US (Foreign
Stocks)
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0.7
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39.7
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39.7
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-6.0
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3.4
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0.5
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10-year Treasury Note (Yield
Only)
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3.8
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N/A
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2.2
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4.7
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4.2
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6.4
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Gold (per ounce)
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-0.5
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26.9
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26.9
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20.2
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20.3
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14.3
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DJ-UBS Commodity Index
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0.8
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18.7
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18.7
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-5.8
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-0.9
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4.2
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DJ Equity All REIT TR Index
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-2.6
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28.5
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28.5
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-12.2
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0.5
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11.0
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Notes: S&P 500, DJ Global ex
US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold
does not pay a dividend) and the three-, five-, and 10-year returns are
annualized; the DJ Equity All REIT TR Index does include reinvested dividends
and the three-, five-, and 10-year returns are annualized; and the 10-year
Treasury Note is simply the yield at the close of the day on each of the
historical time periods.
Sources: Yahoo! Finance,
Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee
of future results. Indices are unmanaged
and cannot be invested into directly.
N/A means not applicable or not available.
"EVERY DOG HAS ITS DAY," according to the old saying and the dogs of
2008 certainly had their day (or year) in 2009.
Bespoke Investment Group looked
at the 50 worst performing stocks in the S&P 500 index in 2008 and
discovered that they rose on average 101% in 2009. Conversely, the 50 best
performing stocks in 2008 rose on average only 9% in 2009. Here's an
interesting question. Let's say it's January 1, 2008 and you just happened to
buy 100 stocks that day from the S&P 500 list and 50 of them turned out to
be the 50 worst performers for the year and the other 50 turned out to be the
50 best performers for the year. If you bought and held those 100 stocks, which
basket - the 50 worst from 2008 that turned out to be the best in 2009 or the
50 best from 2008 that underperformed in 2009 - would leave you with the most
money at the end of 2009?
Remember, the 50 worst stocks
from 2008 rose 101% in 2009 while the 50 best from 2008 rose only 9% in 2009.
Do you have your guess as to which basket performed the best over the two-year
period?
And, the answer is... we don't
know. However, we can make an informed observation.
In 2008, the 15 worst stocks lost
at least 87%, according to Bespoke Investment Group. This means that the stock
that lost 87% in 2008 would still be down about 74% at the end of 2009 if it
rose the average 101% in 2009 (e.g., a $100 stock that loses 87% is worth $13;
if it rises 101%, it is worth only about $26 at the end of year two). By
contrast, the 15 best performing stocks in 2008 rose at least 11%. This means
that the stock that rose 11% in 2008 would sport a two-year gain of about 21%
if it rose the average 9% in 2009.
So, just looking at the 15 best
and worst stocks from 2008, it appears that the 15 best stocks from 2008 would
still be far ahead of the 15 worst stocks over the 2008-2009 period.
This highlights the point that
dramatic losses are difficult to recover from and that's why it is so important
to focus on risk management.
Weekly Focus - Think About It
"We will open the book. Its pages
are blank. We are going to put words on them ourselves. The book is called
Opportunity and its first chapter is New Year's Day."
--Edith Lovejoy Pierce
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Best regards,
Jim Forcella, CFP®, CFS
LPL Branch Manager
LPL Investment Adviser Representative
CA Insurance License #0635256
P.S. - Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this e-mail with their e-mail address and we will ask for their permission to be added.
Closing Reminders - Should your personal or financial situation change (i.e. Marital or employment status, beneficiary changes or income needs) please contact us at 530.222.6301 or 800.546.5573 for either a phone review, or an appointment. We want to ensure that your current financial objectives meet your personal circumstances.
Forcella Wealth Management Information - Are you receiving too much mail regarding your investments? You now have the option to receive your LPL Financial communications electronically! LPL Financial is pleased to offer the convenience of viewing shareholder communications, including the fund prospectus, annual reports, and proxy statements online. Visit the link below to be directed to a secure website where you will enter your LPL Financial account number and Email address. You will no longer receive shareholder communications information through the mail but can request a hard copy at any time. Please feel free to contact us if you have any questions regarding this form.
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Forcella Wealth Management
1600 Victor Ave ● Redding, CA 96003
Phone 530.222.6301 ● Toll Free 800.546.5573 ● Fax 530.226.1677
jim.forcella@lpl.com ● www.forcellawealth.com
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* This newsletter was prepared by PEAK.
* The Standard & Poor's 500 (S&P 500) is an unmanaged
group of securities considered to be representative of the stock market in
general.
* The DJ Global ex US is an unmanaged group of non-U.S. securities
designed to reflect the performance of the global equity securities that have
readily available prices.
* The 10-year Treasury Note represents debt owed by the United
States Treasury to the public. Since the U.S. Government is seen as a risk-free
borrower, investors use the 10-year Treasury Note as a benchmark for the
long-term bond market.
* Gold represents the London afternoon gold price fix as reported
by the London Bullion Market Association.
* The DJ Commodity Index is designed to be a highly liquid and
diversified benchmark for the commodity futures market. The Index is composed
of futures contracts on 19 physical commodities and was launched on July 14,
1998.
* The DJ Equity All REIT TR Index measures the total return
performance of the equity subcategory of the Real Estate Investment Trust
(REIT) industry as calculated by Dow Jones.
* Yahoo! Finance is the source for any reference to the
performance of an index between two specific periods.
* Opinions
expressed are subject to change without notice and are not intended as
investment advice or to predict future performance.
* Past
performance does not guarantee future results.
* You cannot
invest directly in an index.
* Consult
your financial professional before making any investment decision.
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Securities Offered Through LPL Financial Member FINRA/SIPC
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