Stocks turned in another solid year, the Dow Jones Industrial Average gaining nearly 11% and the Nasdaq doing better still. vYet for much of 2010, it didn’t feel like a winning year.
“It was a pretty hard-earned 11%,” said Jeffrey Palma, global equity strategist for UBS Investment Research. “It was like a roller coaster—certainly nothing like a straight line.”
With one day of trading left in the year, the Dow Jones Industrial Average has gained 1,141.66 points, or 10.9%, and stands at 11569.71.
The Standard & Poor’s 500-stock index has added 142.78 points, or 12.8%, to 1257.88. The Nasdaq Composite index has risen 393.83 points, or 17.4%, to 2662.98.
The second half of the year was responsible for nearly all of the 2010 stock gains. Since hitting a closing low on July 2, the Dow has advanced 19.4%. On Thursday, the Dow slipped 15.67 points, or 0.1%.
There were several noted areas of out-performance. Small caps, as measured by the Russell 2000 index, jumped 26% (also see “Small Cap Meant Big Rise This Year”, The Wall Street Journal, December 31, C1). Real estate investment trusts also rose, with the Dow Jones Equity All REIT index surging 23.2%. Tech favorites Apple, Netflix and F5 Networks catapulted up by 53.6%, 226.4% and 150% respectively.
Industrial behemoth Caterpillar, with its ties to commodities and emerging markets, notched a 64.7% gain, making it the best-performing Dow component. And Ford, which more than quadrupled in 2009, continued to rise, posting a gain of 66.9% amid optimism about the economic recovery.
In the spring, markets fell as the European debt crisis flared out of Greece, chatter about Chinese monetary tightening grew, and U.S. economic data came in weak.
Then a technical snafu in the afternoon of May 6 sent U.S. markets careening. At its afternoon low, the Dow plummeted 998.50 points, its biggest intraday point drop ever, before quickly reversing course. Several stocks inexplicably fell to one cent a share. What came to be known as the “flash crash” rattled confidence and turned a harsh spotlight on the growing influence of algorithmic and high-frequency traders.Stock investors looked ready to throw in the towel. On July 2, the Dow tumbled to a close of 9686.48, some 13.6% below its April 26 high. Investors began to move to the safety of U.S. Treasurys, pushing the price of bonds up and their yields down. Some wondered if the bond market was starting to price in the possibility of deflation.
That was a risk the Federal Reserve wasn’t willing to take. On Aug. 27, Chairman Ben Bernanke hinted in a speech at a Fed symposium in Jackson Hole, Wyo., that the Fed could launch a second round of the bond-buying known as “quantitative easing” to bring down interest rates.
The speech marked a turning point. Emboldened first by the Fed and later by improving economic data, investments entailing more risk soared.
Agricultural commodities, a traditionally volatile sector, saw unusually extreme price swings. Coffee prices hit a 13-year high this week after a spate of adverse weather, and are up 73.8% on the year. Sugar hit 30-year highs this week before collapsing again. Summer wildfires in Russia and a ban on that country’s wheat exports sent wheat prices up by 45% in the third quarter alone. Cotton hit a 140-year high in December—not adjusted for inflation—while corn and soybeans rose 48.6% and 31.4% respectively this year.
Concern about an activist Fed and a feeble dollar fueled demand for inflation hedges. Gold charged above $1,400 in early November. The excitement extended to silver, which during the last four months of the year surged higher, hitting a series of 30-year highs, before inflation. It’s up 81% on the year. Copper, long considered a bellwether of economic activity because of its use in many applications, hit new highs in December.
Commodities and materials stocks jumped too. The industrials, materials and energy sectors were among the best-performing of the S&P 500 through Thursday’s close, up 23.8%, 19.8% and 17.9% respectively.
The consumer discretionary sectors rose 26% as Americans showed signs of shaking off the worst effects of the financial crisis. The S&P consumer sector was buoyed by stocks such as Wynn Resorts and Abercrombie & Fitch, which rose 74.7% and 66.7% respectively.
At the same time, the relative weakness of technology stocks was another surprise. Many market watchers had predicted tech would rise on spending by efficiency-minded corporations.
Some of the sluggishness could be attributed to stumbles by a few tech giants. In August, the abrupt departure of Hewlett-Packard Chief Executive Mark Hurd knocked the company’s shares down 8%, while a weak sales projection in November from Cisco sent that bellwether stock tumbling 16%. H-P and Cisco are set to finish the year down 18% and 15.5% respectively.
While tech as a whole didn’t live up to expectations, some of the biggest growth stories came from that sector. Excitement over cloud computing boosted F5 Networks. NetFlix rode a wave of goodwill to more than triple in value. Apple surged after scoring a hit with its iPad. Online retailer Amazon.com and International Business Machines also climbed to all-time highs.
On the losing end, for-profit education company Apollo Group finished the year through Dec. 30 down 34.5%, on the prospect of more government regulation.
– “Bumpy Climb For Stocks In 2010: Investors Endured A Year Of Wobbles And Worries, But Market Rewarded Them”, The Wall Street Journal, December 31, A1