Observations: March 2011 Stock Market Update

Friday, April 1, 2011

March 2011 Stock Market Update

March, Year-To-Date & Recovery-To-Date Review
Note: Click here for April 2011 stock market results

For the first time in months, the stock market did not set a multi-year high. The pullback that started last month amid concerns about unrest in the Middle East, and the resulting increase in oil prices, continued as the disturbances spread and escalated -- even to the point of U.S. (limited) military involvement.

Fukushima-Daiichi Nuclear Plant Incident

In addition, one of the largest earthquakes in recent memory (9.0 on the Richter scale) struck Japan. The earthquake caused not only major damage and scores of aftershocks, but still another tsunami. The combination of the earthquakes and the tsunami caused widespread devastation in Japan; one result was enough damage to the Fukushima nuclear power plant to ultimately cause radiation leakage and raise the possibility of a nuclear meltdown. It also raised the possibility of worldwide supply disruptions, especially in the automotive and electronics industries, in a global economy supplied by "just-in-time" (JIT) inventories.
(Note: for explanations of what happened in the Fukushima-Daiichi nuclear plant incident, see Anatomy of a Nuclear Crisis: A Chronology of Fukushima or this excellent PowerPoint presentation by Areva.)

Not surprisingly, the market "hiccupped" -- falling as low as 11,548 intraday and 11,613 at the close on March 16. In addition, volatility spiked; the VIX, a measure of volatility, approached 30 for the first time since July of last year.

Not to worry! In the face of the above, and a few other lingering issues (e.g., European sovereign debt issues, U.S. sovereign debt issues?, etc.), the market came roaring back. The DJIA (Dow Jones Industrial Average) ended the quarter at 12,319.73 -- less than 75 points from another multi-year high -- with a dividend yield of 2.37%.

Here's a look at where we stand at the end of the first quarter, after this remarkable 2-year+ run:

From Prior Month Close of 12,226: The Dow is up 93 points (0.8%)
From December/EOY Close of 11,578: The Dow is up 742 points (6.4%)
From Recent Low of 9986 on August 26, 2010: Up 2334 points (23.4%)
From 52-Week Low of 9686 on July 2, 2010: Up 2633 points (27.2%)
From Crash Low of 6547 on March 9, 2009: Up 5773 points (88.2%)!

Note: For other recent results, see February stock market results, 2010 stock market stats, plus 100-year chart.

Next Steps??

As I suggested, we're not all that far from recovering from the "hiccup" and establishing another multi-year high -- and, all things considered, amazingly close to undoing all the damage from the crash that started toward the end of 2008.

From 52-week High of 12,391 on Feb 18, 2010: the Dow is off 72 points (0.8%)
From All-Time High of 14,164 on Oct 9, 2007: the Dow is down 1845 points (13.0%)

Note: The Dow lost about 54% of its value in the crash. For an explanation of how it can be up over 88% and still be 13% below the all-time high, see The Importance of Avoiding Large Losses.

The Next 10 Years

A key question in my mind is whether these advances are sustainable; will they be enduring -- or only temporary? In the first quarter of last year, my stock market projection model projected 10-year returns in the neighborhood of 5.5%. Last year's above-trend performance will reduce future prospects somewhat; my preliminary 10-year projection was in the neighborhood of 4.7%. Since my model is earnings based, I'll have to wait for 2010 earnings data before finalizing the projection. I expect to post a formal update next month.

100 Years of Stock Market History: Includes 100-year chart and discussion of the long flat periods.
Dow Yearly Returns: 1929-2010 : bar graph of yearly total returns (i.e., including dividends)
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: 5/1/2011