2010 was the year the market truly came back, despite sovereign debt concerns in Europe, the global currency battle, and other geopolitical issues.
This summary does not capture every detail of the market during the last 12 months, but it is meant to give the investor an overall idea of what happened, in order to plan for 2011.
GENERAL MARKET SUMMARY
• The S&P 500 Index [.INX] started year at 1115.10. Tuesday’s close (12/21/2010) was 1254.60, the highest since September 2008 and was a 12.51% increase. During the 3rd quarter of the year, investors became more confident in the US economy after positive corporate earnings and increased merge & acquisition (M&A) activity. They regained their appetite for equities and dumped bonds.
• The S&P/TSX Composite Index [tse:GSPTSE] started the year at 11746.11, and ended on Tuesday at 13,365.15. the highest since mid 2008 and was a 13.8% increase. During the later half of the year (and particularly in the 3rd quarter) the index was helped by the surge in commodity prices across the board, particular in gold & silver (both reaching record prices). Positive corporate earnings and modest GDP growth helped.
January – February 2010
– During the middle of January, the S&P500 index fell -2.9% while the Dow Jones industrial index fell a sharp -4.9%. The VIX or Volatility Index, often referred to as the “investor fear gauge” showed a large increase of 32% during that week. Fears mainly surrounded the possible default of Greece’s public debt, and the market experienced the “worst losing streak since March” 2009 (although not to the same extent).
– During March, a sigh of relief came to Europe as discussion intensified with a German and the International Monetary Fund (IMF) lead bailout from the EU for Greece. US President Barack Obama had signed the historic $938 billion health care overhaul, which also helped to increase the overall sentiment.
April – May 2010
– Widespread protests and strikes by Greek labour parties were held in reaction to the nation’s austerity plan and proposed cutbacks. This caused Euro zone concerns to heighten, sending markets lower once again. However, data in the US also showed a very weak economy. Markets continued to fall throughout the month.
June – July 2010
– Disappointing US job data was released in June and caused markets to continue falling. But by mid June world stock markets rose on news that Beijing has pledged to allow its currency to increase in value against the U.S. dollar (a concern that had been ongoing since the beginning of the year). However, the rally was short lived as US home sales plunged 33% to a record low, causing markets to fall once more.
– In the middle of July Greece raised €1.625 billion (US$2.04 billion) in a debt auction (sales of government bonds), its first since being bailed out in May. It attracted strong investor interest and lead the global markets higher.
– Stronger corporate earnings began to emerge during the quarter.
– The Bank of Canada (BoC) also raised the benchmark lending rate to 0.75% amid modest growth forecast.
August – September 2010
– On August 12th, US home data showed foreclosures rose for the 8th straight month. Markets tumbled in reaction to the negative news, ending the mid summer rally. US community bank seizure news, released in August, contributed to negative investor sentiment.
– However, in Canada the BoC continued to increase rates, indicating to investors that the economy’s growth had stabilized at a moderate rate.
– At the end of September, Adecco the world’s largest staffing company, said that demand for temporary workers was strong. Many economists often interpret temporary employment as a leading indicator for future jobs growth and a bellwether for economies as a whole. US President Barack Obama also signed a $30 billion small business lending bill into law.
– The Irish government announced another $16 billion US was to be added into the country’s banking system to help ease debt problems.
– Microsoft’s dividend increase of 3%, also marked a return to corporate dividend increases.
– Investor optimism grew and the markets continued to rise from the August lows.
October – November 2010
– Chinese growth continued to fuel the global markets. China also ordered its banks to put more money aside as required reserves, to decrease some of the cash that had been inflowing into the country (growing inflationary threat). This caused investors to go back to US and North American Stocks.
– The US Federal Reserve also announced it was committing $600 billion to buy more government bonds/treasuries in order to stimulate the weak US economy.
– In November, one of the largest initial public offerings (IPOs) in North American was held by General Motors Company [GM], signaling investor confidence had returned to a point where an IPO would be well received. The IPO was very successful for GM.
– Third quarter corporate earnings continued to stabilize and show strength. Intel’s 15% increase to its quarterly dividend was yet another large positive signal for the US economy, and buoyed investor confidence.
– Euro zone concerns diminished as Ireland held bailout talks with the IMF.
– The long rally stopped in later half of November as North Korea fired artillery shells at a South Korean island, in one of the heaviest attacks on its neighbour since the Korean War ended in 1953.
– European Union (EU) finance ministers endorsed an €85 billion (US$115 billion) EU and IMF loan package to help Ireland cover bank debts and bridge a huge budget deficit. This eased debt concerns and caused markets to a climb to a rally during the last month of the year. Euro zone finance ministers also discussed increasing the size of a 750 billion euro (US$1,006 billion) safety net for debt-stricken members to halt contagion.
– China’s decision not to hike interest rates yet as part of an inflation-fighting program helped to increase risk appetite overall, which lifted stocks.
– The South Korean military held a 90-minute live-fire artillery exercise on the South Korean island of Yeonpyeong, with no North Korean reaction. This brought a measure of relief to the crisis that raised fears of war (and instability) in the Asian Pacific region.
– In North America, positive corporate earnings, and a major deal involving Canada’s Toronto Dominion Bank’s (TD Bank/TD Canada Trust) [TD/tse:TD] acquisition of Chrysler Financial fueled optimism.
– The S&P 500 Index [.INX] and the S&P/TSX Composite Index [tse:GSPTSE] ended Tuesday (12/21/2010) at two year highs.
The US economy still remains relatively weak, with housing and jobs still being a major concern. Although Korean relations in the region have not lead to war, it remains very tense. Concerns of instability are still lingering. European debt problems remain front and center, with other nations such as Spain and Portugal on the radar. 2010 has shown that the global economy is recovering at a slow pace, but still has many problems that remain to be solved before normal growth can resume. The markets have recognized the recovering economy. Investors have also increased their appetite for risk, while still remaining cautious and waiting for more positive results.
The next few articles, will be a year-end summaries and outlooks for of currencies, bonds, etc.
• Update 12/26/2010: 2011 Bond Market Outlook & 2010 Review
• Update 1/7/2011: 2011 Currencies Outlook & 2010 Review
• Update 1/17/2011: 2011 Mergers & Acquisitions Outlook and 2010 Summary
Thanks & Happy Investing! – The Investment Blogger © 2011