Gains beyond expectation
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.