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]

A look at stocks, commodities and memories (good and bad)

Provided by Los Angeles Financial Planner, Rose Greene, CFP®

A turbulent ten years. The 2000s gave us remarkable opportunity and remarkable volatility. They tested our patience, and many investment strategies. They taught us to hold on, hang in there and diversify.

Stocks. Was it really a “lost decade”? It depends on how you were invested. Yes, the Dow ended the 1990s at 11,497.12 and ended the 2000s at 10,428.05, amounting to a 9.30% slip. The S&P 500 lost 24.10% in the same interval. If you had invested a lump sum into a security represented on the S&P 500 on December 31, 1999 and left those assets untouched for ten years, you may have ended up with a sizable loss.^1,2

Well, that sounds dismal – but how many of us actually invest this way? Very few of us make one lump sum investment and just watch it for ten years. Thanks to diversification, rebalancing and constant inflows of new money, there were some investors who were able to grow their assets and/or outperform the S&P 500 in the past decade.

The fact is, five sectors of the S&P 500 gained 10% or more across the 2000s – health care (+10.85%), utilities (+10.92%), materials (+24.91%), consumer staples (+31.84%) and energy (+102.12%).²

Few articles about the “lost decade” mention this notable factoid: the Russell 2000 advanced 23.90% during the 2000s.² Firms that that focused on buying undervalued small-company stocks gained an average of 8.3% annually in the 2000s.³

Outside America, developing stock markets shattered all expectations while the developed markets mirrored American performance. Look at the decade-long gains in key indices in some of the BRIC nations, as measured by CNBC.com: China, +72%; India, +249%; Brazil, +301%; Russia, +863%. Compare all that with the benchmark indices in Japan (-44%), France (-34%), Great Britain (-22%) and Germany (-14%) in the past decade.⁴ Emerging market investment vehicles gained an average of 9.3% per year in the last ten years.³

Commodities. It was a decade of amazing gains in the broad commodities market. From the end of 1999 to the end of 2009, gold advanced 278.52%. How about silver and copper? Silver gained 208.91% and king copper rose 287.78%. Crude oil rose 210.00% during the 2000s.²

How great a decade was it for the commodities sector? Only one notable commodity posted a ten-year loss from 12/31/1999 to 12/31/2009. That was palladium, which retreated 8.98%. On the other hand, we know that 16 commodities gained 100% or more across the decade.²

The two biggest gainers during the 2000s were a pair of crops: sugar (+340.36%) and cocoa (+293.31%).²

Highs and lows. We are 10 years past the bursting of the tech bubble – March 10 will mark the 10^th anniversary of the NASDAQ’s all-time high of 5,132.50.⁵ And of course, a decade-defining geopolitical event rocked the markets 18 months later.

General Motors and Chrysler filed for bankruptcy protection in 2009; at the start of the decade, so did Enron – the company that Fortune Magazine ranked as “most innovative” each year from 1995-2000.⁶ In 2008, Lehman Brothers, Morgan Stanley, Goldman Sachs, Merrill Lynch, and Washington Mutual either folded, mutated, or were bought up while AIG, Freddie Mac and Fannie Mae were bailed out.

The Dow hit a new high of 11,723 in January 2000, a post-9/11 closing low of 7,286 in October 2002, and then ended 2003 at 10,453 (as the DJIA gained 25.32% that year while the dollar lost 14.67%). The Dow hit new peaks of 11,727 on October 3, 2006 and 14,164 on October 9, 2007. A close of 11,215 on July 2, 2008 officially marked the start of a bear market.⁷

From March 9, 2009 closing lows to the end of the year, the Dow shot up 59.28% and the S&P 500 advanced 64.83%.² This led to some to entertain tantalizing thoughts about the birth of a new bull market. Or it is simply a cyclical bull in a secular bear? The jury is still out, as the saying goes; we can hope for the best.

What did we learn? The 2000s taught us lessons about irrational exuberance (companies that had never made a dime were probably not worth billions) and lessons about the value of diversifying your portfolio. We also learned lessons in perseverance – some of those who stayed invested have seen their portfolios make a strong recovery.

The 2000s put investors through some seemingly unimaginable financial headlines. It was a rare decade, an aberrant one in stock market history – for example, the Dow hadn’t had a negative decade since the 1930s, and it had advanced 228.25% over the 1980s and 317.59% for the 1990s.⁸ Will we see it make a double- or triple-digit advance in the next ten years? We don’t know. Past performance is no indicator of future success. Yet the awesome potential of the stock market and commodities markets should not be dismissed – and with economies healing the world over, it is clearly time to look forward and stay invested.

Foreign investments, especially those in emerging markets, involve greater risk and may offer greater potential return than U.S. investments.

Rose Greene, CFP® is a Representative with LPL Financial and may be reached at www.rosegreene.com or,  rose at rosegreene dot com

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) money.cnn.com/quote/historical/historical.html?pg=hi&close_date=12%2F31%2F99&mode=add&symb=DJIA [1/16/09]  2) cnbc.com/id/34645043 [12/31/09] 3) articles.latimes.com/2009/dec/31/business/la-fi-stocks31-2009dec31?pg=3 [12/31/09] 4) cnbc.com/id/34643111 [12/31/09]  5) smartmoney.com/investing/economy/the-financial-decade-in-review/?page=2 [12/31/09]  6) smartmoney.com/investing/economy/the-financial-decade-in-review/?page=4 [12/31/09]  7) the-privateer.com/chart/dow-long.html [12/31/09] cnbc.com/id/34619797 [12/29/09]

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.