Quote of the year. “Many an optimist has become rich by buying out a pessimist.” – Robert Allen
The market improved; the economy improved. The doomsayers with visions of “Dow 4,000” were disproven. The Great Recession in all probability ended. Unemployment reached 10%, and major automakers went bankrupt, reorganized and shed brands. Stocks went on a nine-month rally of historical proportions. Major healthcare reform made its way through Congress. It was a hard year for Main Street but a gratifying year for Wall Street.
The year in brief.
. In 3Q 2009, the U.S. economy grew again, telegraphing an end to a recession that likely lasted about 18 months. U.S. GDP had come in at a pitiful -5.8% and -6.4% for 4Q 2008 and 1Q 2009, then improved to -0.7% and +2.2% in subsequent quarters.1 How much of the improvement can you credit to the government stimulus? Good question. The Federal Reserve kept interest rates at record lows, and the Obama administration put forth the CARS program and first-time buyer credits to encourage auto sales and home sales.
Domestic economic health
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Businesses and consumers endured through a rough first half into a better second half. Most notably, 2009 saw Chrysler and General Motors entering and emerging from bankruptcy, with Chrysler eventually partnering with Fiat. Saturn, Pontiac, Saab and Hummer all flirted with or faced extinction. The closely watched and highly respected Institute for Supply Management manufacturing index went from a downright scary 35.6 in January to 55.9 in December. It went over 50 in August (meaning growth) and has stayed above 50 since.2 As for the even more closely watched ISM service sector index, it went from 42.9 to 50.1 over the course of 2009, with the highest reading of the year being 50.9 in September.
While we don’t yet have data for December, we do know that the Consumer Price Index increased 1.8% from November 2008 to November 2009, the first year-over-year gain since February. Energy prices rose 7.4% in that stretch, with all items less food and energy rising 1.7%.4 In November 2009, personal incomes had advanced for five straight months and consumer spending had increased four of the past five months; while personal spending was up 1.5% from a year before, it still was 0.8% below December 2007 levels (when the recession began).5,6
Somber nightly news anchors regularly presented us with bleak updates on unemployment and foreclosures. No doubt about it, the numbers were troubling. The jobless rate was 7.2% in December 2008, and 10.0% 11 months later.7 RealtyTrac said U.S. foreclosure filings reached a record high in 3Q 2009, 23% above levels of a year before.8 Foreclosures did fall for the fourth consecutive month in November, but many analysts wondered if this was temporary and simply a byproduct of the Obama administration’s mortgage relief plan.9
Still, as the calendar pages turned there wasthe sense that things were getting better – and they certainly were on Wall Street.
On March 9, the S&P 500 and Dow fell to 12-year lows, and the NASDAQ hit a 6-year low. There was nowhere to go but up … and up, and up, and up. From those troughs to the end of the year, the Dow rose 59.28%, the S&P 500 64.83% and the NASDAQ 78.87%. The turnaround was truly epic.
Major indexes.
|
|
2009
|
2008
|
|
DJIA
|
+18.82
|
-33.84
|
|
NASDAQ
|
+43.89
|
-40.54
|
|
S&P 500
|
+23.45
|
-38.49
|
Source: CNBC.com, 12/31/0910,11
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends.
Global economic health. In its April forecast, the International Monetary Fund estimated a 1.3% contraction in the world economy in 2009 – which would mark the first such instance since the end of World War II. It also predicted a -2.8% contraction for America’s economy in 2009 and 0% growth for the U.S. in 2010. 12 But things improved slightly. By October, the IMF had U.S. GDP at -2.7% for 2009 and +1.5% for 2010. It estimated world GDP at -1.1% for 2009 and +3.1% for this year, led by roughly 5% growth across emerging economies.13 In July, the World Bank forecast global GDP at +1.2% for 2009, 2.0% for 2010 and 3.2% for 2011, with growth in developing nations rising to 4.4% for 2010 and 5.7% for 2011.14
World financial markets. If 2008 was a year of extreme losses, 2009 saw extreme recoveries. The hottest indices (no surprises here) were in emerging markets. At the top, the always entertaining RTSI in Russia: +128.62 for 2009. Brazil’s Bovespa had the second-best year among notable indices: +82.66%. The Asia-Pacific region saw amazing gains all around: the Australian All Ordinaries, +33.43% for the year; India’s Sensex, +81.03%; the Shanghai Composite, +79.98%; the Hang Seng in Hong Kong, +52.02%; South Korea’s KOSPI, +49.65%. Even the Nikkei 225 rose 19.04%. The major European indices posted nice gains: the German DAX climbed 23.85%, the French CAC 40 advanced 22.32% and England’s FTSE 100 rose 22.07%.15
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