How did I do?
In what follows, I repeat my expectations for 2010as they were provided in my Stock Market Com-mentary a year ago and provide a brief analysis onwhat actually occurred
italicized in red
. From lastyear, I said:
...I’m inclined to go along with the majority opinion of the
market strategists, namely, that the U.S. market will bepositive for the year with the best part of the performanceoccurring in the first half of the year.
Following a weak Janu-ary, the S&P 500 improved through mid-April, declined through June, and steadily improved through the end of the year, closing out the year near the YTD high.
My 2010 forecast reflects the ying and yang of the U.S. mar-ket in 2010 as I see it.
On the one hand, stimulus payments and foreign-earned profits will push the S&P 500 higher, perhapseven higher than conventional wisdom, to a range of 1200-1300.
In fact, this rationale proved accurate and theS&P ended the year nearly1258.
On the other hand, the brakes will come on when defi-cit reduction plans and activities become more clearand imminent.
This occurred in Europe with a dampening impact on the markets, especially during April through Juneand toward the end of the year.
The saving grace for the market in 2009 was massiveglobal central bank intervention. Since over half of al-ready approved U.S. stimulus remains to be distributedin the first half of 2010 and more may come, the stimu-lus will have its desired effect on consumption and willboost market performance.
While the extent of the
“boost” to the markets is arguable, many feel the stimulusdid prevent a “double dip” recession. Deeper analysis sup-
ports positive economic results throughout the year.
Sooner or later, as recovery appears to be more immi-nent (or deficits too large to ignore), the Fed will beginto withdraw liquidity from the system or, at least, signalthat that moment is nigh. Ironically, when this happens,
it’s likely to place a strain on the market as interest
rates increase and credit conditions tighten. That said, I
don’t expect this will occur much sooner than late
and interest rates
are increas-ing, fiscal tightening has yet to occur in the U.S. Europe, onthe other hand, is currently going through retrenchment inthe wake of sovereign debt and bank credit problems and new austerity measures.
Domestically, technology, large cap, consumer discre-tionary, basic materials and medical devices are likely tobe among the best performers.
Technology, consumer discretionary and basic materials all outperformed the S&P 500, while large cap (S&P 100) and medical devices under-performed.
From a regional standpoint, emerging markets and Asia/
Pacific (excluding Japan, “AxJ”), though more volatile,
are likely to outperform the S&P 500 and other devel-oped markets for the foreseeable future.
Both marketsoutperformed the S&P 500, but by less than 5 percentagepoints, and they were both more volatile..
I’m ambivalent about the dollar. Weakness is in U.S.
interests in that it stimulates exports and fattens foreign-earned profits. On the other hand, as the Fed unwindsstimulus and deficit hawks gain the upper hand, risinginterest rates will strengthen the dollar. Bottom line, Isee the dollar strengthening by the end of the year.
Thedollar strengthened through mid-year, declined until Novem-ber, then bounced back to end the year nearly where it be- gan, up 1.3% above other developed economy currencies..
I have become less enthusiastic about gold. With “pushme, pull you” influences and interest rate risk to theupside, gold’s expected performance is too unpredict-
able to continue my previous bullish stance.
2010 Forecast Review
Lane Asset Management
extremely well in 2010, gaining 28%. I missed that one.
Quality and high yield income securities of short and in-termediate duration (conventional and convertiblebonds and preferred stocks) will provide reasonable re-turns with limited volatility. That said, the prospect of increasing interest rates, could put these funds(especially investment grade) under price pressure.
Thisturned out to be true with bonds and other income-oriented securities performing very well through October, then deterio-rating for the balance of the year..
Despite stimulus, difficulties will remain in the domestic
economy. Ultimately, the economy can’t fully recover until
final demand is restored (consumer spending accounts forabout 65% of GDP). Stimulus spending will support demandfor a period of time, but no one believes that can continueindefinitely. The hope, I suspect, is that the stimulus willprovide a catalyst for a more self-
sustaining economy. We’ll
I’d say this turned out to be true as unemployment remains
high, the housing market remains in the doldrums and GDP growth remains below trend and typical post-recession levels.
...I expect new unemployment insurance claims to continueto decrease and the number of new jobs created to steadilyincrease, though not enough to bring the unemploymentrate below 9% by year-end.
Unemployment claims are de-creasing, hitting a 2 1/2 year low in late December while the un-employment rate remains close to 10%.
...I believe the 10-year Treasury bond rate will continue toclimb, perhaps to 4.5%, while consumer credit continues tocontract, both unfavorable to the economy and the marketin the short run, at least.
The 10-year T-bond ends the year yielding just under 3.4%; outstanding consumer credit declined throughout most of the year with a bit of a spike at the end of the year.
** *** **All in all, not a bad record.