June 2010 Stock Market Update

100 Year Dow Chart with 25-Year Moving Average

Dow 25-Year Moving Average

Note: For a more up-to-date version of the above chart see 2010 Year-end Stock Market Update.

Above is a very long-term chart of the Dow, including the 25-year moving average (click chart to expand); it uses this past month's close for this year's close. It shows that the market rarely falls very far below its 25-year moving average.

May, Year-To-Date & Recovery-To-Date Review
Click here for July update with June, 2010 stock market results

In early March 2009, I posted Dow At 25-Year Moving Average. The Dow continued lower for several more days before bottoming at 6547 on March 9 -- very near the 25-year moving average at the time. Since then, the Dow has rallied close to 3600 points. If we treat the May 28 close of 10137 as the 2010 close, the moving average is now at 7271. (See the chart above. Click to expand.)

May was the worst month of the year so far. The market was down 872 points (7.9%). As a result, the Dow is now again negative for the year -- down 291 points (2.8%) year-to-date. Volatility picked up considerably. The VIX, a measure of volatility, opened the month at less than 20, peaked at nearly 50, and closed at over 30. The volatility was highlighted by the "flash crash" on May 6, when the Dow plunged over 1000 points intraday only to recover most of the losses and close down "only" about 300 points.

In total, this bull market is now up about 55% in a little less than 15 months. For reference purposes, the largest bear market rally following the 1929 crash lasted about 5 months, during which the Dow rose approximately 50%. Given that, it would not be unreasonable to assume that we are "home free." However, believe it or not, it's still possible that this will ultimately prove to be "just" an extended bear market rally. (For a more detailed discussion of bear market rallies following the 1929 crash, see The 1929-1932 Stock Market Crash Revisited).

The Next 10 Years

My stock market projection model projects 10-year returns in the neighborhood of 5.5% as of the beginning of 2010. The market decrease since then has slightly increased anticipated returns. However, I am still concerned that long-term returns from current levels are likely to be below average.

Related Reading:

Next Monthly Update
10-Year Stock Market Projection shows how expected returns have changed over the last 10 years.
Projecting Stock Market Returns introduces the projection methodology.
Dow Yearly Returns since 1929 (bar graph)
What was the Dow rate of return for the last 5, 10, 20 years?
What has the range of returns (minimum & maximum) been for 1, 5, 10, 20-year periods?
Who's Afraid of a Sideways Market?: Interesting perspective on long flat periods from Morningstar.

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Last modified: 1/14/2011