It was a year in which governments and central banks around the world took extraordinary measures to get their economies growing. While the bailouts and economic stimulus boosts that many countries employed may have had mixed results for it’s citizens, the boost to stock markets was definitely real. The U.S. stock market ended the year with a comeback of historic proportions, with the Dow Jones Industrial Average up 65% from its March nadir and 20% for the year.
The broad-based S&P 500 index was up 25%, the strongest performance since 2010. The technology-driven Nasdaq index nearly doubled those gains, rallying 45%.
However US stock market advances paled in comparison with those of the BRIC (Brazil, Russia, India and China) stock market rallies. The (Chinese) Shanghai composite jumped 80% this year, while the best performing stock market in was Brazil’s Bovespa Index which surged 145% in dollar terms, fueled in part by the 29% rise in the value of its real currency versus the greenback.
India’s Sensex surged 81% as the government policies and economic growth fueled a quick rebound from March lows. Hong Kong’s Hang Seng index rose 52%, while Japan’s Nikkei closed a comparatively modest 19% higher.
The Japanese economy is still dogged by deflation, as well as fears that it may return to recession. Western-European stock markets also notched up 20 to 40 percent gains on average from lows earlier in the year, but the best performers in the region were many of the hard hit eastern European economies, up well over 50%.
Investors will remember 2009 as the year that the U.S. stock market made a substantial turnaround from its plunge in 2008 when fallout from the implosion of subprime mortgages and the credit crisis forced many well established financial institutions into or onto the edge of bankruptcy – changing the landscape of Wall Street forever.
Yet, even with a 60% gain since the lows in March, stock investors have lost money this decade when total returns (including dividends) are taken into account. Few will be overwhelmed with the long-term performance of their portfolios.
As far as 2010 goes, experts say 2009 percentage gains are not likely to be repeated and history suggests the biggest gains may already be over, making it hard to expect a blockbuster 2010. Governments are expected to withdraw economic support and there are concerns that businesses and consumer may struggle without it.
There are also expectations that interest rates may rise sooner than expected, which have been helping the U.S. dollar rally recently that could make a sustained move higher – if expectations for higher rates increase further. The stock market moved inversely to the dollar through most of 2009, and a continued bounce in the greenback in 2010 could therefore hurt stocks.
The market’s reaction to the US dollar is going to dictate a lot of the investment themes for the first half of 2010. Employment, corporate profits and housing will again be major factors in determining if 2010 will be a good year for investors.
If housing and employment stabilize, stock markets could easily rise another 20% and push close to record highs, though most expect say the easy money has been made already and you’re not going to see another 65% move in 2010.