Survived October
The S&P 500’s monthly streak of posting seven consecutive monthly gains came to an end in October 2009. The 1.98% drop in October was tranquil as compared to past Octobers. During the seven month streak from March 2009 through September 2009, the S&P 500 gained a surprising 43.80%. Intuitively, one would expect a major pullback after the run we had, but history tells a different story. In a study done by Greg Blaha and Ryan Malo at Bianco Research, LLC, they found in the fourteen previous market streaks of seven months or longer, the S&P average return was 4.16% for the following quarter and 7.84% for the following year. While the majority is expecting a major correction, don’t be surprised if the market continues to confound the consensus.
On the economic front, there is continuing improvment in the numbers and we expect the U.S. economy to show a 3.5% growth rate in the second half of 2009, with growth continuing positive through 2011. The Federal Reserve is likely on hold until 2011 before we start the upward moevment in short-term interest rates. The Fed has pumped massive amounts of liquidity into the economy and this will need to be withdrawn at the right time and pace. Unemployment will continue to be a drag on the economy, but will peak near 10% and gradually improve over the next few years.
The markets and many portfolios have been whipsawed over the past 15 months and this seven month streak gives everyone a second chance to anaylze their financial situation. This is the perfect time to make a thorough evaluation of your portfolio to make sure you are diversified within and among the asset classes and the risk of your portfolio is aligned with the risk you can afford. If the risk in your portfolio matches your personal goals, the next round of market volatility will be much less stressful.