All-Time Low Treasury Interest RatesYou could argue that the biggest stock market story in September was the bond market! Even in the face of S&P's August downgrade of U.S. debt from AAA to AA+, treasury yields continued to decline. According to Bloomberg Businessweek, 10-year yields reached an all-time low of a bit under 2% on September 6. By the end of the month, the market had blown through that record, setting a new low of 1.72% on September 22.
Granted much of the action in the bond market was a flight to safety triggered by escalating fears about the worldwide economy in general and the European economy and Euro specifically. In addition, the Fed initiated Operation Twist -- still another form of quantitative easing aimed at keeping downward pressure on long-term rates.
The result was another losing month for the stock market -- its fifth straight. Besides being the worst of the string of losses, it was the worst month of the year. The market ended the third quarter at 10,913.38, with a dividend yield of 2.8%, and more than 5% below where it started the year.
September, 3rd Quarter, Year-To-Date & Recovery-To-Date ReviewHere's where we stand vs. some key dates and milestones:
- From All-Time High of 14,165 on Oct 9, 2007: the Dow is down 3251 points (23.0%)
- From Crash Low of 6547 on March 9, 2009: Up 4366 points (66.7%)
- From 52-Week Low of 10,751 on October 4, 2010: Up only 162 points (1.5%)
- From December, 2010 Close of 11,578: The Dow is down 664 points (5.7%)
- From 52-week High of 12,811 on April 29, 2011: the Dow is down 1897 points (14.8%)
- 3rd Quarter Results. From 2nd Quarter Close of 12,414: The Dow is down 1501 points (12.1%)
- From Prior Month Close of 11,614: The Dow is down 700 points (6.0%)
- From Recent Low of 10,720 on August 10, 2011: Up 193 points (1.8%)
Note: At the end of the crash, the Dow had lost about 54% of its value (from the all-time high). For an explanation of how it can be up 67% since then and still be well below the all-time high, see The Importance of Avoiding Large Losses.
The Next 10 YearsBecause of elevated valuations, my stock market projection model projected below average 10-year returns in the neighborhood of 5.5% as of the beginning of the year. The market performance since then has increased the expected returns into the 6-7% range -- still significantly below the average returns the market has historically delivered.
Related Articles & Posts100 Years of Stock Market History: Includes 100-year chart and discussion of the long flat periods.
Dow Yearly Returns: 1929-2010 : bar graph of yearly total returns (i.e., including dividends)
What has the range of returns (minimum & maximum) been for 1,2, 3, ... 100-year periods?
10-Year Stock Market Projection shows how expected returns have changed over the last 10 years.
100 Years of Interest Rate History: graph of Treasury Note interest rates since 1900
Who's Afraid of a Sideways Market?: Interesting perspective on long flat periods from Morningstar.
Three Scenarios for the Economy (and the stock market) includes links to additional relevant articles by Bill Gross, Nouriel Roubini, Jeremy Grantham, John Hussman, and others.
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Copyright © 2011. Last modified: 11/1/2011