Gains be­yond ex­pec­ta­tion

The Washington Post Sunday - - BUSINESS -

Mar­kets ral­lied in 2010 on the over­all strength of eco­nomic strides and record earn­ings.

Stock mar­ket bears are still wait­ing for the new nor­mal to take hold. The Stan­dard & Poor’s 500-stock in­dex rose 13 per­cent in 2010, bring­ing the ad­vance sinceMarch 2009 to 86 per­cent, the biggest rally for a com­pa­ra­ble pe­riod since 1955. The im­prov­ing econ­omy and record earn­ings sent the bench­mark eq­uity in­dex to the largest gain in con­sec­u­tive years since 1999, the data show. Cater­pil­lar, DuPont and McDon­ald’s jumped more than 22 per­cent in 2010 to lead gains in the 30-stock Dow Jones in­dus­trial av­er­age.

The rally is chal­leng­ing Pa­cific In­vest­ment Man­age­ment’s new nor­mal the­ory fromMay 2009 stat­ing that re­turns on fi­nan­cial as­sets would be be­low his­tor­i­cal av­er­ages be­cause of govern­ment bud­get deficits and in­creased reg­u­la­tion. U.S. eq­ui­ties have re­turned 6.2 per­cent a year since 1900 be­fore div­i­dends.

“Over the vast ma­jor­ity of the last two years, the strong­est voice out there has been that this is a high-risk en­vi­ron­ment, that re­turns and ex­pec­ta­tions are go­ing to be sub­nor­mal for years,” said James Paulsen, chief in­vest­ment strate­gist at Wells Cap­i­tal Man­age­ment. “ The re­sults couldn’t be more op­po­site than that.”

TheS&P500 rose 0.1 per­cent to 1257.64 last week, ex­tend­ing its biggest De­cem­ber rally since 1991 and boost­ing its 2010 gain to 13 per­cent af­ter a 23 per­cent rise in 2009, the biggest two-year ad­vance since 1998 and 1999. The Dow climbed 4.02 points, or less than 0.1 per­cent, to 11,577.51 last week, ex­tend­ing its yearly in­crease to 11 per­cent.

The Trea­sury will sell $29 bil­lion in three­month and $28 bil­lion in six-month bills on Mon­day. They yielded 0.13 per­cent and 0.19 per­cent in when-is­sued trad­ing.

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