To start the new year, let’s take a look back at 2010 from an investment perspective.  For the second year in a row, stock markets rose more than the historical averages.  Bonds were also positive for the year.  Discipline was again important – 8 months into the year the S&P 500 Index was down 5.8%, but later surged to a 15.1% gain for the year, recouping all of its losses since the collapse of Lehman Brothers on September 15, 2008.  News in 2010 often scared investors, causing some to invest emotionally and/or remain on the sidelines, creating large opportunity costs.

Outside the US, 37 out of 45 countries in the MSCI international stock index were also positive.  Peru and Thailand vied for the top spot (up 53%), while Greece and Spain struggled most.

News in 2010 often scared investors, causing some to invest emotionally and/or remain on the sidelines:

  • A prominent researcher who predicted the Great Recession expected the “biggest asset bust ever.”
  • The January cover story in The Economist warned of asset price bubbles.
  • The “January Indicator” signaled weak stock market performance for the remainder of 2010.
  • The Gulf of Mexico oil rig explosion in April created a hugely expensive disaster.
  • The “flash crash” on May 6th saw the Dow index drop 1100 points in only a few frantic minutes.
  • Hundreds of bank failures revealed continued weakness in the financial system.
  • A divided Congress passed a complex and politically charged healthcare reform bill.
  • Housing was weak.  New home sales fell to the lowest level since 1963, when tracking started.
  • An obscure technical indicator called the “Hindenburg Omen” generated a “sell” signal in August.
  • North Korea attacked South Korea’s Yeonpyeong Island in November.
  • A financial crisis gripped governments in Greece, Spain, Portugal and Ireland.

Investors also found news items to smile about in 2010:

  • Citigroup returned to private ownership and US tax-payers reaped a $12 billion gain.
  • Pickup truck sales rebounded sharply and Ford Motor shares jumped 67% for the year.
  • Fallen insurance giant AIG surprised skeptics with a 92% increase in share price.
  • GM came out of bankruptcy and had a strong re-IPO. Time will tell if tax-payers gain.

While markets plowed forward despite a continued weak economy, it is too soon to celebrate.  Amongst other concerning statistics, unemployment remains high and consumer spending (representing 70% of GDP) is still weak.  Part of the 2010 market gains result from continued economic stimulus, which helps currently, but may only be deferring some of the pain of future deficits, taxes and potential inflation.  The Advisory Group continues to encourage a realism and caution when considering spending needs.

 

Contact us for guidance with Personal Wealth or Fiduciary Management.