The year 2009 is now in the history books and it certainly was quite a year. To look at the final year end performance statistics one would certainly say that it was a banner year for the investment markets. The Dow Jones Industrial Average was up 18.8%, the Nasdaq up 43.9%, and the S&P 500 a positive 23.5%. Let’s take a minute though and flash back one year. The economy and markets were caught up in an incredible financial meltdown and anxiously awaiting the outcome of a Federal Government stimulus being proposed by the new Obama administration. The bottoming, at least from the standpoint of the investment markets, was realized on March 9, 2009.
From that calendar date to the end of the year the markets had an astonishing run to the finish line. It was like the afterburners on one of our space shuttles being lit and just heading off into the atmosphere. During that time the Dow was + 59.28%, the Nasdaq+ 64.83%, and the S&P 500 +64.83%. Remarkable as it was it is important to keep another benchmark in perspective. Using the Dow as an example, in spite of its good performance in 2009 it is still 26.4% down from its all time record high set in October 2007. The investment markets have a lot of work yet to be done along with the economy!
So where are we headed in 2010? Depending on which economic or financial analyst is currently expressing his or her opinion in the media we could be looking at the economy behaving as a letter of the alphabet. If it’s an L, that would suggest a straight line down giving up some percentage of the recovery we made and possibly leveling off for an indefinite period. It could be a V, which could imply that we will head down somewhat, maybe a 10-15% pullback, and go straight back up similar to the way the market behaved in 2009. Another scenario offered is a W, which is a double dip that returns us all the way to the original meltdown level before eventually recovering again. Then there is the U. This suggests that there will be some pullback with a protracted bottoming that begins to deliver an economic recovery at a slower pace but eventually guiding the market beyond the thrust achieved in 2009.
So class, the key letters of the alphabet that we need to be familiar with this year are once again L, V, W, and U. I am not making any prediction which letter will dominate the economic landscape. There are too many economic issues still in play which can alter the course of recovery very quickly and require a change in the investment thesis for clients. The bottom line, I just need to stay on top of developments.
It is 2010, The Year Of The Alphabet (Part 2 of 2)
