July 2010 Stock Market Update

100 Year Dow Chart with 25-Year Moving Average

Dow 25 Year Moving Average

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.

June, Year-To-Date & Recovery-To-Date Review
Note: click here for July Data

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 is up a little over 3200 points. If we treat the June 30 close of 9774 as the 2010 close, the moving average is now at 7256. (See the chart above. Click to expand.)

June was another down month. The market was off 363 points (3.6%). For the second quarter in total, the damage came to 1083 points, or 10%. As a result, the Dow is now down 654 points (6.3%) year-to-date, and at its low for the year. Volatility remained moderate. The VIX, a measure of volatility, spent most of the month at 30, give or take a few points.

This bull market is now up about 49% in a little less than 16 months. However, it is down 12.8% from its April high close of 11205, which again raises the question of whether what we have been experiencing is 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 forecast returns such that I now anticipate a 5.9% return to the end of 2019. In short, I am still concerned that long-term returns from current levels are likely to be below average.

Related Reading:

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: 8/1/2010