Don’s Outlook 12/31/09
Stocks continued to meander their way through the last two months of 2009, including the shortened trading week ahead of Christmas and the New Year. Yet, they did manage to stroll beyond resistance levels toward new highs, even though this failed to spark any great reaction or follow-through on behalf of the bulls or of the bears due to light trading volumes. The S&P 500 quietly surpassed the 1,121 threshold, which was an important technical milestone. Because it has reached this level on low volume and during poorly attended trading sessions, however, a truer test will be its ability to hold the line here once trading resumes in force next year.
The year ended far better than most would have predicted at the March lows, when the headlines were still full of bad news and the most dire predictions. The bear market — ushered in by the bursting of the real estate bubble, the ensuing financial meltdown and credit crunch and the global recession that followed — was the second-worst in the last 80 years. The 20-month slide ended this year only after an unprecedented government response of tax cuts, stimulus spending, and financial bailout packages.
If 2009 was an important year in stemming those losses and in setting the groundwork for a lasting economic recovery, 2010 is shaping up to be the year when the recovery’s strength and stamina will be tested. For its part, the Dow Jones Industrial Average has rallied more than 19 percent year to date, and nearly 60 percent from its bedeviling bottom, placing its climb among the strongest of major market rallies from potential secular lows. Now, after settling into a seven-week trading range, the index looks ready to break out.
In the short term, I expect to rely on some of the funds that have recovered strongly in 2009, such as Federated High Income Bond Fund (FHIIX) and ICON Information Technology Fund (ICTEX), which have provided returns of more than 50 percent and 46 percent, respectively, year to date. I also expect to hold funds such as Federated Strategic Value Fund (SVAAX), which has recovered more than 40 percent from its March lows, yet only has a 12 percent return year to date. The fund is beginning to outperform both the Dow and the broader S&P 500.
With the advent of the New Year, I would like to remind you how important it is to review your investments in their totality. Dion Money Management strives to be your most trusted advisor, and we are more than happy to review any investments managed by other advisors or that you manage on your own. We can perform a portfolio review and provide a clear picture of your complete asset allocation, making recommendations to position your investments opportunistically in 2010 that are in line with your risk tolerance.
