Observations: November 2010 Stock Market Update

Monday, November 1, 2010

November 2010 Stock Market Update

October, Year-To-Date & Recovery-To-Date Review
Note: click here for November data

The market is on a tear. The DJIA (Dow Jones Industrial Average) closed the month of October at 11,118.49. Partially in anticipation of additional quantitative easing from the Fed, the market continued the advance from its recent low in August. Here's a summary of the extent of the advances:

From Prior Month Close of 10788: Up 330 (3.1%)
From 2009 Close of 10428: Up 690 points (6.6%)
From Recent Low of 9986 on August 26: Up 1133 points (11.3%)
From 52-Week Low of 9686 on July 2: Up 1432 points (14.8%)
From Crash Low of 6547 on March 9, 2009: Up 4571 points (69.8%)

The Half-Empty Glass
The market is closing in on its 52-week high. On the other hand, taking the more pessimistic perspective, after all that progress, note that compared to:

52-Week High of 11205 on April 26: we're still down 87 points (0.8%)
All-Time High of 14164 on Oct 9, 2007: we're still down 3046 points (21.5%)

So, I guess it depends on your perspective.

25-Year Moving Average and Volatility

The Dow 25-Year moving average tends to provide support even for secular bear markets. The March 9, 2009 bottom of 6547 was very near the 25-year moving average at that time. If we treat the October close as the 2010 close, the 25-year moving average is now at 7310. Thus, it would take a drop of more than 30% before this potential level of support would come into play again.

Volatility remained moderate. The VIX, a measure of volatility, closed the prior month at 23.7, spent a good part of the month as low as 19, and closed at 21.2.

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 increase since then is such that forecast returns to the end of 2019 are essentially unchanged. As a result, I still expect that long-term returns from current levels are likely to be below average.

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?
10-Year Stock Market Projection shows how expected returns have changed over the last 10 years.
Projecting Stock Market Returns introduces the projection methodology.
Who's Afraid of a Sideways Market?: Interesting perspective on long flat periods from Morningstar.
For lists of other popular posts and an index of stock market posts, by subject area, see the sidebar to the left.

This work is licensed under a Creative Commons Attribution 3.0 unported license. Last modified: 12/2/2010