Year-End Reflections

A wave of sovereign debt dilemmas, an earth quake in Chile, a Gulf oil rig explosion, a "flash" crash, a Gold rally, sovereign debt aftershocks, a mid-term election and then another debt debacle in Europe; the year of 2010 is behind us, thank goodness. If we were looking at a snapshot of the market taken at the beginning of the year, and another taken today, we would be hard pressed to find many significant changes. 3 out of every 4 stocks listed on the NYSE entered 2010 in a positive trend, and about as many will exit the year trending higher. Within the 40US economic sectors, 5 of the top 10 sectors at the beginning of the year are among the top 10 as we exit the year. 6 of the bottom 10 sectors entering 2010 are among the bottom 10 exiting 2010 as well. Had we not lived through 2010 we might come to the conclusion that very little change actually came to pass during the past 12 months. By comparison to 2008 & 2009 the past year could arguably be described as mild. It has been one of those years where when the dust settles, all the major domestic equity indexes will have had positive returns, with double-digit returns for the equity markets.

Despite all that has occurred on the surface of the market the words "what is, is" comes to mind as the leadership within the market has a very similar complexion to that of a year ago. The primary market indicator remains positive, albeit in overbought territory. Despite an exhale in the market since a peak in early November, trends remain positive. Certainly these things can change, and at some point they certainly will, but for now we see a market that remains generally strong longer-term but far less overbought near-term than we were just a few weeks ago.
Both domestic and international equities remain emphasized. Large caps have been out-of-favor relative to mid and small caps for the duration of 2010. Masking this a year in which knowing where to be in the market was more valuable than knowing whether to be in the market. 2008 was obviously an example of knowing whether to be in (or out of) the market, as equities were out of favor for the duration of the year. The International market leadership still points to the emerging markets. Weakness in the broad fixed income asset class continues as interest rates rise and demand falls. The 10 year yield index (TNX) has risen from 2.30% to 3.45%. Commodities continue to remain resilient overall.


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