Provided by Los Angeles Financial Planner, Rose Greene, CFP 

The stock market is amazingly resilient.

The Stock Market can Sometimes Feel like a Roller Coaster Ride

You might be surprised at how fast the stock market can change … for the better. Let’s look at how the market has recovered remarkably – and quickly – from some notable downturns.

2008-2009: The collapse of the subprime mortgage markets triggered a recession and made 2008 the poorest year for stocks since 1931. The Dow Jones Industrial Average fell 10% in June 2008 and fell 10% again in October 2008, losing 19.12% for the year. On March 9, 2009, the major U.S. indices closed at 12-year lows with the S&P 500 at 676.53.^1,2,3

Then the market took off. Investors who swore off stocks in early 2009 lost out on one of the great rallies. From the March 9 lows to the end of 2009, the S&P 500 soared 64.83% while the NASDAQ gained 78.87% and the Dow gained 59.28%.⁴

2001-2002: After the four-day closure of the stock market following 9/11, the Dow fell 685 points to 8,920 on September 17. It kept falling, losing 14.26% in a week to close at 8,235 on September 21.  But what happened next? A huge gain. The Dow closed 2001 at 10,021 – a 21% rebound in less than three months.⁵

There were more challenges ahead. On October 9, 2002, the Dow had fallen to 7,286.  But on Halloween, the Dow sat at 8,397 – a 10.6% gain in 22 days.⁵

As for the people who panicked and bailed out of the stock market, they ended up kicking themselves:  in 2003, the DJIA gained 25.3%, the S&P 500 26.4%, and the NASDAQ 50%.⁶

1987: October 19 was Black Monday: in a contagion of selling exacerbated by unchecked computer technology, the Dow lost 22.6% in one day, falling to 1,738, a 508-point loss.⁷ (That would be akin to a 2,400-point one-day drop today.)  The S&P 500 lost 20.4%.⁸ By comparison, the initial “Black Monday”,  the stock market crash of 1929, represented a 12.8% market loss.⁹

Then the recovery kicked in. During the next two trading days, the Dow gained nearly 300 points – and it closed 1987 at 1,939, gaining back all of the loss and ending up 2% for the year.¹⁰ By January 1990, the DJIA was at 2,800.¹¹

If you were fortunate enough to invest $1,000 in the S&P 500 index at the close of Black Monday and reinvested your dividends, you would have wound up with about $10,800 20 years later.⁷ If you had invested in the Dow stocks a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.¹⁰

1974: With investors fretting over rising inflation and the energy crisis, the Dow loses 30% of its value during the first three quarters of the year. Suddenly, the Dow gains 16% in October.¹² In early December 1974, the Dow is at 577; in July 1976, it hits 1,011.⁵

So while the Dow, S&P and NASDAQ have been through some rough periods (and even a poor decade), the important thing is how they have climbed historically.

On August 12, 1982, the Dow was at 777.  On January 14, 2000, it was at 11,722.98.  That’s a 1,500% gain in 17½ years.¹³ This is why people stay in the market through the downturns. This is what the market is capable of achieving. There are periodic descents, but history is definitely on an investor’s side.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based common stocks listed on The Nasdaq Stock Market. The Standard & Poor’s 500 Index is an unmanaged index generally representative of the U.S. Stock Market.

This material was prepared by Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Citations.

1. 1 cnbc.com/id/28451744 [12/31/08]
2. 2 allheadlinenews.com/articles/7013587460 [1/3/09]
3. 3 money.cnn.com/2009/03/09/markets/markets_newyork/index.htm [3/9/09]
4. 4 cnbc.com/id/34645043 [12/31/09]
5. 5 the-privateer.com/chart/dow-long.html [6/30/08]
6. 6 upi.com/Business_News/2003/12/31/UPI_NewsTrack_Business/UPI-75601072911443/ [12/31/03]
7. 7 sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/10/18/BUODSRIN6.DTL&type=printable [10/18/07]
8. 8 foreignpolicy.com/story/cms.php?story_id=4026 [10/07]
9. 9 money.cnn.com/2004/10/26/markets/1929crash/ [10/26/04]
10. 10 articles.moneycentral.msn.com/Investing/Dispatch/BlackMonday20YearsAfter.aspx [10/19/07]
11. 11 answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average [7/3/08] 12 money.cnn.com/2008/06/27/markets/bear_market.moneymag/index.htm [6/27/08]
12. 13 answers.com/topic/closing-milestones-of-the-dow-jones-industrial-average [7/3/08]

Quote of the week. “Cheers to a new year and another chance for us to get it right.”– Oprah Winfrey

Consumers think positive. The latest index of consumer attitudes from the Conference Board came in at 52.9 last week, surpassing the 52.5 forecast in a Reuters poll of analysts and the 50.6 mark recorded in November. The expectations index (the “how do you feel about the next 6 months” gauge) hit 75.6, the best reading since December 2007.¹

Initial claims suggest happier 2010. They fell again in the Labor Department’s December 26 report, down to 432,000 – the lowest figure since July 2008. Analysts polled by Briefing.com thought they would rise to 460,000. Initial jobless claims have trended downward since late March.²

Mortgage rates & home prices rise. Checking the newly released October Case-Shiller home price index, we see that residential prices rose by 0.4% nationally with gains in 11 of 20 metro areas. The latest index has prices up 3.5% nationally since May. Rates on 30-year FRMs increased for the fourth straight week to 5.14% in Freddie Mac’s last national survey of 2009.^3,4

A very good year for gold and oil. Gold gained 23.96% in 2009, ending the year at $1,096.20 an ounce. Crude oil rose 77.94% in 2009 (and 1.68% last week) to finish the year at $79.36 a barrel. From the end of 1999 to the end of 2009, gold prices rose 278.52% and oil prices gained 210.00%.⁵

And finally … At the close of the final market day of 2009, the DJIA stood at 10,428.05, the NASDAQ at 2,269.15, and the S&P 500 at 1,115.10. All three of the indices posted weekly losses, but Wall Street was savoring the big picture: the great 2009 gains and the 64.83% advance of the S&P 500 since its March 9 close.⁶

(Source: CNNMoney.com, ustreas.gov, bls.gov, 12/31/09)^6,7,8,9

Indices are unmanaged, do not incur fees or expenses, and cannot be

invested into directly. These returns do not include dividends.

Riddle of the week. A man jumped out of a small plane without a parachute. When he hit the ground, he wasn’t injured at all. Why?

Contact my office or see next week’s Update for the answer.

Last week’s riddle: What number should be next in this series: 9, 16, 25, 36?

Last week’s riddle answer: The next number is 49. 3² = 9, 4² = 16, 5² = 25, 6² = 36, and so on.

____________________________

This material was prepared by Peter Montoya Inc., and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx^®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. The market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.

Citations.