2009 - Year in Review; 2010 - What’s Next
The equity market bottomed on March 9, 2009 and since then has been on a one way ride higher with eight of the next nine months producing gains. Here is a look at 2009 by the numbers.
Stock Market Benchmarks:
12/31/09 12/31/08 Return
- Dow Jones Industrial Average 10,428 8,776 18.8%
- S & P 500 1,115 903 23.5%
- S & P 400 Mid Cap 727 538 35.1%
- NASDAQ 2,269 1,577 43.9%
- Dow Jones Utilities 398 371 7.3%
- NYSE Financial 4,737 3,848 23.1%
- NYSE Energy 11,527 9,434 22.2%
- BBG Reit 145 120 20.8%
When 2009 started most market prognosticators did not project returns like this. When we bottomed in early March, the emotional state of the market was gripped by fear and pessimism. History has taught us numerous times to buy stocks when fear is rampant and sell when greed rules. It is easy to say this, but much harder to implement. To avoid the trap of selling low and buying high try a new approach. My advice is to not let your market opinion (or anyone else’s market opinion that you follow) get in the way of investing properly. For 2010 and beyond it is important for the individual investor to build a diversified portfolio using ETFs and/or mutual funds. Hold your core equity sectors (U.S, stocks and International equities) through thick and thin and be opportunistic in the “explore” segments of the market using gold, real estate, emerging markets, energy, and agriculture as places to add value. This is our approach at Gradient Investments and it served our clients well in 2009.
Key Bond Rates: 12/31/09 12/31/08 Return
- U.S. 3-Month T-Bill 0.04% 0.09% +0.21%
- 2-Year U.S. Treasury 1.06% 0.77% +1.05%
- 10-Year U.S. Treasury 3.82% 2.25% (9.71)%
- 30-Year U.S. Treasury 4.64% 2.68% (25.98)%
- 30-Year Fixed Mortgage 5.36% 5.14% +5.87%
- BBG Investment Grade Corp 4.98% 6.17% 19.76%
- BBG High Yield Corp Bond 9.44% 16.72% 57.51%
The U.S. fixed income market has never had the disparity of returns among the sectors like we saw in 2009. Long U.S. Treasuries had their worse total return year ever and corporate bonds had one of their best. The numbers above tell the story. 2010 will not be a repeat of last year. The entire investment grade bond market yields 3.5% and fixed investors should set their return expectations near this number. I expect Treasuries to continue to be under pressure with corporate bonds and mortgage backed securities offering slightly better value. The individual investor needs to own these sectors via EFTs and no-load mutual fund. We are moving our durations shorter to protect against a likely increase in interest rates in 2010.
The start of a new year is a perfect time to review your portfolio, assess your portfolio’s risk level and check to see if it is in line with your personal risk tolerance level. It has been a wild ride the past two years. Moving forward, spend less time worrying about the market’s next move and more time focused on your investment approach. You will sleep better and enjoy better investment results.