August 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.

July, Year-To-Date & Recovery-To-Date Review

Note: click here for August 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 over 3900 points. If we treat the July 30 close of 10,466 as the 2010 close, the moving average is now at 7,284. (See the chart above. Click to expand.)

The market bounced back in July, and is now again above the psychologically important 10,000 level. The market was up 692 points (7.1%) in July. As a result, the Dow is now again positive, barely, for the year -- up 38 points (0.4%) year-to-date. Volatility decreased. The VIX, a measure of volatility, started the month around 35 and ended at 23.5 -- reasonably close to the long term average reading around 19.

This bull market is now up about 60% in a little less than 17 months. However, it is still 6.6% below its April high close of 11205. While some have sounded the "all clear," others are concerned that 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 10% market decrease in the second quarter slightly increased forecast returns to 5.9% from mid-year to the end of 2019. 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: 9/1/2010