Observations: December 2010 Stock Market Update

Thursday, December 2, 2010

December 2010 Stock Market Update

November, Year-To-Date & Recovery-To-Date Review
Note: click here for December/End-of-year data

After advancing more than 1,000 points in the prior two months, the market set a new 52-week high of 11,444 early in the month, then took a breather. The DJIA (Dow Jones Industrial Average) closed November at 11,006.92.

There is both good news and bad news, depending on your perspective. If you like good news, here's how the November close stacks up against some earlier benchmarks:

From 3rd Quarter Close of 10,788: Up 219 points (2.0%)
From 2009 Close of 10,428: Up 579 points (5.6%)
From Recent Low of 9986 on August 26: Up 1021 points (10.2%)
From 52-Week Low of 9686 on July 2: Up 1320 points (13.6%)
From Crash Low of 6547 on March 9, 2009: Up 4460 points (68.1%)!

The Not-So-Good News
However, as I said at the open, it depends on your perspective. The pessimists among us will note that:

From Prior Month Close of 11,118: We're down 112 (1.0%)
From 52-Week High of 11,444 on November 5: we're down 437 points (3.8%)
From All-Time High of 14,164 on Oct 9, 2007: we're still down 3158 points (22.3%)

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 November close as the 2010 close, the 25-year moving average is now at 7306. Thus, it would take a drop of more than 30% before this potential level of support would come into play again.

Volatility remained moderate, even after renewed concerns about the Euro and European sovereign debt caused a spike toward the end of the month. The VIX, a measure of volatility, closed at 23.5.

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.

100 Years of Stock Market History: Graph of the Dow Jones Index since 1900
Dow Yearly Returns since 1929 (bar graph)
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
Who's Afraid of a Sideways Market?: Interesting perspective on long flat periods from Morningstar.
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This work is licensed under a Creative Commons Attribution 3.0 unported license. Last modified: 1/1/2011