The S&P 500 gained 2.0% in the 3rd quarter and is up 9.1% on the year. Looking at quarterly returns for the major US Indexes, it was a quiet three months for US stocks. Looking at the month by month returns - what a wild ride!
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What do home-owners and hedge funds have in common? Both are making leveraged bets on the value of an underlying asset.
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The S&P 500 gained 6.2% in the second quarter and is up 6.9% for the year. Coming in to the April earnings reports, stock analysts were universally pessimistic about US corporate earnings growth, expecting only 3.9%.
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Stock markets, US and international, were choppy in the first quarter. Through February 20th, the S&P 500 gained 2.9%. Over the next two weeks, the S&P 500, fell 5.9%, recovering before quarter end to a net gain of 0.6%.
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One week ago, the Dow was at all-time highs, the S&P 500 and NASDAQ at six year highs and the S&P 500 was within a few percent of making a new all-time high.
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For the most part, our clients trailed the averages for the year by about 4% despite a late year rally in technology stocks. As this was the second year in a row of underperformance (last year by 1%), we reviewed our strategy from top down to see whether flaws exist.
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In previous letter, we had speculated about the investment of hedge funds in the energy market and whether that participation was driving oil prices artificially high.
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Eight months into the year, the S&P 500 is up 2.37% and the NASDAQ is down 6.58%. From January 2005, which marked the end of the last decent rally, the S&P 500 has gained 7.4%, which is about the same return as an investment in bank CD’s over the same time frame.
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Stocks looked pretty healthy right up until May 10th when the Federal Reserve Bank raised rates for the 16th time to 5.0%.
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On May 19th, we wrote, “Stocks rallied into this afternoon’s close, which we believe marks the bottom of this particular pull back. Most likely we’ll be investing recent client deposits on Monday.”
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The modest correction of the past two weeks bears some comments. On May 9th, the major indices were at 6 year highs with the Dow 80 points from an all-time high and the S&P 500 13% from its all time high.
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US stocks put in a decent return for Q1 2006 even as oil prices settled in at the highs for the quarter, the Federal Reserve continued to raise short term rates, the situation in Iraq improved only modestly, housing prices settled back on falling sales, the 10 year yield moved substantially towards 5%, and President Bush’s approval ratings hit the lows for his presidency.
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Annually, we take some time to think about the big picture trends that are driving the US economy and society, pick out interesting themes and trends, then consider those companies whose products and services address those trends.
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The S&P 500 gained 1.9% in the 4th quarter and gained 4.2% for the year. Nearly all the return for 2006 came from November 1st through the second week of December, with the S&P 500 peaking for the year on December 14th, but sliding 2% by year end.
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