|
Weekly Commentary
June 7, 2010
The
Markets
Despite
the blaring headlines of late, the U.S. stock market has been stuck in
a broad trading range since last September.
It's
easy to get caught up in the daily gyrations of the stock market's ups and
downs, but when viewed through a longer-term lens, the S&P 500 index has
been pinballing between a range of about 1,040 and 1,217. The low end of the
range was established in mid-September of last year and the high end of the
range was reached in late April of this year, according to data from Yahoo!
Finance. Last Friday, the index closed at 1,065, which is near the low end of
the range.
Range-bound
markets are not unusual and with the big rise we've had since March 2009, some
consolidation of those gains is par for the course. Going forward, the market
can do one of three things. It can continue to bounce around the range, it can
breakout of the range to the upside, or it can breakdown. Of course, nobody
knows until after the fact which scenario will occur, but regardless of the
next direction, we continue to do all we can to help you reach your goals and
objectives.
|
Data as of 6/4/10
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
| |
Standard &
Poor's 500 (Domestic Stocks)
|
-2.3%
|
-4.5%
|
13.3%
|
-11.6%
|
-2.3%
|
-3.2%
| |
DJ Global ex
US (Foreign Stocks)
|
-1.2
|
-11.2
|
6.7
|
-12.9
|
1.4
|
-0.1
| |
10-year
Treasury Note (Yield Only)
|
3.2
|
N/A
|
3.7
|
4.9
|
4.0
|
6.1
| |
Gold (per
ounce)
|
-0.3
|
9.0
|
24.0
|
21.5
|
23.1
|
15.6
| |
DJ-UBS
Commodity Index
|
-2.7
|
-12.3
|
-4.7
|
-11.4
|
-4.7
|
1.6
| |
DJ Equity All
REIT TR Index
|
-6.0
|
4.3
|
38.7
|
-12.1
|
0.8
|
10.3
|
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.
HOW OFTEN SHOULD WE
EXPECT THE STOCK MARKET to
experience declines of at least 5%? When training for athletic events coaches
are fond of saying, "No pain, no gain." Likewise, investors should
expect to endure the "pain" of market declines in order to benefit
from the "gain" of bull markets. But, in order to withstand these
market declines, it's helpful to know how much pain is "normal."
The
chart below shows more than 100 years of the frequency of various declines in
the Dow Jones Industrial Average. Although past performance is no guarantee of
future results, the chart should give you some historical perspective:
A History of
Declines (1900 - December 2009)
|
Type of Decline
|
Average Frequency(1)
|
Average Length(2)
| |
-
5% or more
|
About
3 times a year
|
48
days
| |
-
10% or more
|
About
once a year
|
115
days
| |
-
15% or more
|
About
once every 2 years
|
217
days
| |
-
20% or more
|
About
once every 3 1/2 years
|
338
days
|
Source: Capital Research and Management
Company
(1)
Assumes 50% recovery rate
(2)
Measures market high to market low
As of
last week, the Dow was in the "-10% or more" category, according to
CNNMoney.com. This was the first decline of 10% or more since March 2009,
according to Barron's. Looking at the chart above, the current decline puts us
right in line with the historical frequency of such declines.
We
realize that market declines are not enjoyable even if they are in line with
historical frequency. However, knowing where we stand within the context of
history can help us make clearer and less emotional decisions as it relates to
investment strategy.
Weekly
Focus - Think About It
"The
trend is your friend except at the end where it bends."
--Ed
Seykota
. | 
