Wednesday, August 1, 2012

July 2012 Stock Market Update

Stock market (DJIA) monthly performance / closing prices for last 12 months
Dow Index Monthly Closes Through July, 2012

The Dog Days of Summer

The July stock market was, at least in my view, relatively uneventful.  Not much volatility -- just three days were plus or minus one percent -- and little "new news."

The elephants in the room continue to be a) European sovereign debt issues, b) the increasing possibility of a hard landing in China, and c) the struggling U.S. economy.  In addition, we're another month closer to the so-called "fiscal cliff" looming at the beginning of next year (when both severe cuts in U.S. government spending and higher tax rates are scheduled to go into effect). Finally, there is the uncertainty surrounding the upcoming Presidential election.

However, in the face of these continuing issues, the stock market logged its ninth increase in the past ten months. The DJIA (Dow Jones Industrial Average) closed July at 13,008.68, up 1.0% for the month (see chart above. Click to expand). 

Interest Rates Hit New All-Time Lows

Meanwhile, the Treasury's 10-year constant maturity series established a brand new all-time low of 1.43%.  You could argue that this was more reflective of a global flight to safety than a commentary on the domestic prospects.  Still, my sense is that the bond market is decidedly more pessimistic about the future than is the stock market.

Where Are We Now? July, Year-to-date & Recovery-To-Date Review

Here'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 1156 points (8.2%)  
  • From Crash Low of 6547 on March 9, 2009: Up 6462 points (98.7%)
  • From one year ago close of 12,143 in July, 2011: the Dow is up 865 points (7.1%)
  • From the 52-Week Low of 10,655 on October 3, 2011: Up 2353 points (22.1%)  
  • Year-to-Date From 2011 close of 12,218: The Dow is up 791 points (6.5%)  
  • From the 52-Week High of 13,279 on May 1, 2012: down 271 points (2.0%)
  • From Prior Month Close of 12,880: up 128.6 points (1.0%)
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 almost 100% since then and still be below the all-time high, see The Importance of Avoiding Large Losses.

The Next 10 Years

My stock market projection model continues to project below average 10-year returns. The "official" 2012 10-year projection as of January was for 5.6%/year for the next 10 years. As of the end of July, my interim/monthly model estimates returns closer to 5% per year.

Related Articles & Posts

100 Years of Stock Market History: Bigger perspective on "Where are we Now?." Includes 100-year chart and discussion of the long flat periods.
Dow Yearly Returns: 1929-2011 : 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
Where Are Interest Rates Headed? My methodology & spreadsheet for forecasting interest rates.
Who's Afraid of a Sideways Market?: Interesting perspective on long flat periods from Morningstar.
CBO report warns of U.S. falling off 'fiscal cliff' from USA Today.
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Copyright © 2012. Last modified: 9/3/2012

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