Stocks turned in another decent year in 2010, with the Dow Jones Industrial Average gaining over 11.06% while the Nasdaq and the smaller-cap stocks as represented by the Russell 2000 jumped 16.92% and 25.3% respectively. The broader Standard & Poor’s 500 Index also had a winning year with a strong 12.82% return. However, for most investors and traders alike, it certainly didn’t feel like a winning year, as it certainly was a roller coaster of a ride, especially through the first part of the year.
First off, in the spring of the year markets tumbled, as the European debt crisis flared out of Greece and the chatter about the Chinese raising their interest rates grew stronger with each passing day. It also didn’t help early in the year to see our economic data come in with weaker than expected results, led by the weak labor market and the ongoing housing implosion. Then let’s not forget about the technical snafu on the afternoon of May 6, which sent the Dow plummeting 998.50 points during the so-called ‘flash crash.’ This was the biggest intraday point drop ever, although the markets did quickly reverse course. Unfortunately, several stocks inexplicably fell to one cent a share and rattled the confidence of investors around the world.
Thankfully, Federal Reserve Chairman Ben Bernanke rode to the rescue as on August 27, he announced that the Fed would launch a second round of bond buying known as “quantitative easing,” which marked a turning point for the markets going forward. As it turned out, the second half of the year was responsible for nearly all of the 2010 stock gains. Those investors, who were patient enough to ride out the turbulent and testy times, saw their patience well rewarded. In fact, thanks to the $600 billion that the Fed pumped into the economy in November, along with tax cuts passed by the lame-duck congress in December, the benchmark Standard & Poor’s 500 index propelled higher by 6.5 percent in December alone. In addition to the S&P 500, Santa was also good to the other major indexes for the month as well. For December the Dow gained 5.2 percent; the Nasdaq, grew 6.2 percent; and the Russell 2000 advanced 7.8 percent. That was exactly the type of Christmas ‘stocking stuffer’ that stock investors had been hoping for!
As we begin the New Year, the first week of 2011 starts off with a plethora of economic data. On Monday the Commerce Department releases construction spending for the month of November; where the consensus estimate is for a gain of 0.2%. The ISM Manufacturing Index for December is also set for release Monday with a consensus increase to the 57.2 level from 56.6 in November. Tuesday brings us the release of vehicle sales for December and factory orders for November. With respect to factory orders, they are widely expected to have fallen by 0.2% in the month, compared with a drop of 0.9% in September. Retailers will release their sales data for December on Thursday and we’ll probably get a confirmation that Santa was very generous this holiday season. We close out the week with the Labor Department reporting on December employment on Friday. Non farm payrolls are expected to be up approximately 133,000, with unemployment at 9.7%, down from the 9.8% mark registered in November. Also on Friday, Fed Chairman Bernanke is slated to testify on the economic outlook before the Senate Budget Committee.
As we look into the 2011 stock market crystal ball, investors have to remember that with two consecutive years of impressive stock market gains, the current rally could be getting somewhat ‘long in the tooth.’ There still remain many concerns and questions about the overall economy for investors and traders alike. Is an economic recovery truly underway and will more government stimulus be needed? Will the dour employment picture finally begin to improve? Will interest rates finally continue to rise northward? Are inflationary pressures beginning to rise? Whatever the case, you can bet that 2011 will provide plenty of opportunity for those willing to adapt to the ever-changing economic landscape, and to ‘think outside the box.’ It’s also helpful to remember that the third year of presidential terms tend to make for a good year in the markets. Let’s just hope that this pattern continues for the New Year!
With that being said, all of us at Money Management Services, Inc., wish you and your family a very happy, healthy, and prosperous New Year!
Sources: Barron’s, Wall Street Journal, Reuters, Associated Press, Econoday, The Worden Report, Bloomberg