Observations: June 2011 Stock Market Update

Monday, July 4, 2011

June 2011 Stock Market Update

June, 2nd Quarter, Year-To-Date & Recovery-To-Date Review

European sovereign debt issues and the imminent ending of quantitative easing continued to weigh upon the market throughout the month. As a result, the downtrend that started last month continued. By mid-month, the market had been down 6 weeks in a row. Still, after all was said and done, the DJIA (Dow Jones Industrial Average) ended the month at 12,414.34 -- only a few percent below its 52-week high. At the end of the 2nd quarter, the dividend yield was 2.42%.

Here's where we stand after this remarkable 2-year+ run:

From Prior Month Close of 12,570: The Dow is down 156 points (1.2%)
From 1st Quarter Close of 12,320: The Dow is up 95 points (0.8%)
From December, 2010 Close of 11,578: The Dow is up 837 points (7.2%)
From Recent Low of 9986 on August 26, 2010: Up 2429 points (24.3%)
From 52-Week Low of 9686 on July 2, 2010: Up 2728 points (28.2%)
From Crash Low of 6547 on March 9, 2009: Up 5867 points (89.6%)

Note: For other recent results, see May stock market results and July stock market results.

Coming Up

Even after a couple of rough months, the 52-week high and all-time high are within reach:

From 52-week High of 12,811 on April 29, 2011: the Dow is down only 396 points (3.1%)
From All-Time High of 14,164 on Oct 9, 2007: the Dow is down only ~~1595~~ 1750 points (~~11.3~~ 12.4%)

Note: At the end of the crash, the Dow had lost about 54% of its value (from the all-time high). For an explanation of how it can be up 90% and still be 10% below the all-time high, see The Importance of Avoiding Large Losses.

However, even with recent improvements in Greece, there are still sovereign debt issues in Europe. Potentially even more important are U.S. sovereign debt issues if congress does not resolve the U.S. debt limit issue by early August. And, while the market now seems comfortable with the the FOMC's plan for slowly unwinding quantitative easing, it's still not clear that the unwinding can be done without some negative market impact.

The Next 10 Years

Because of somewhat elevated valuations, my stock market projection model projected 10-year returns in the neighborhood of 5.4% as of the beginning of the year. Slightly above-trend performance during the first half of the year has slightly reduced future prospects. I'm still expecting 10-year returns of around 5%.

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: 7/31/11