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Sustained rally ends topsy-turvy year on stock markets

A trader leans against a telephone post on the floor of the New York Stock Exchange on Thursday, the final trading day of 2009. Stocks were down for the day but made huge gains for 2009 overall.

Associated Press

A trader leans against a telephone post on the floor of the New York Stock Exchange on Thursday, the final trading day of 2009. Stocks were down for the day but made huge gains for 2009 overall.

NEW YORK — Few analysts forecast last year's remarkable stock market rebound as major indexes were plunging to 12-year lows in March. Now, with most experts predicting the pace of stocks' gains will slow in 2010, there's reason to believe they will be proven correct.

Stocks began the dramatic turnaround in March after Citigroup Inc. and other big banks said they were making money again, and then climbed at a fairly steady pace as signs of an economic recovery from the Great Recession became more pronounced.

Investor fears about a potential financial system collapse played a big role in the early-year slump in stocks. Once it was clear that wasn't going to happen, the Standard & Poor's 500 index roared back 64.8 percent from its early March low, the biggest move since the Depression. For the full year, the index rose 23.5 percent, its best showing since 2003.

But sustaining that momentum in the new year likely would require a big drop in the unemployment rate and strong corporate profit gains, along with stable borrowing costs — a combination few analysts are forecasting.

"The easy money has been made already," said Bill Stone, chief investment strategist for PNC Wealth Management. "You're not going to see another 65 percent move in the next nine months."

In Thursday's last trading day of the year, more signs of healing first pleased investors, then had them concerned about the economy's ability to thrive without government help. The ultimate result in an extremely light day on Wall Street was a drop of 1.1 percent for the Dow.

The year's stats tell an incredible story across the financial markets:

• By March, the Dow Jones industrials had tumbled 53.8 percent from a record high in October 2007 to a low of 6,547.05, its lowest level since 1997. It then rocketed 59.3 percent in the final nine months of the year. The Dow is still down 26.4 percent from its 2007 peak of 14,164.53.

• U.S. stocks have gained about $5.2 trillion in value since the low in March, putting the gain for the year at $2.6 trillion. But the climb was still not enough to give investors a win for the decade. The S&P fell 24.1 percent from 2000 to 2009, its first loss for a decade. S&P says it managed to advance during the Depression in the 1930s, thanks to dividend payments.

• A share of Citigroup Inc., one of the banks hit hardest by the 2008 financial crisis and the recession, reached a high early in the year of $7.59, then fell to 97 cents in March. It ended the year at $3.31.

• Technology and financial stocks posted some of the biggest gains in market value in 2009. Among them: Apple Inc., Microsoft Corp., Google Inc., Bank of America Corp. and IBM Corp.

• Stock mutual funds are valued at about $4.6 trillion, up from $4.04 trillion at the beginning of the decade.

• The Chicago Board Options Exchange's Volatility Index, known as the market's fear index and a measure of investor worry, is down 45.8 percent for the year, and also down about 76 percent from its high of about 89, reached at the height of the financial crisis in the fall of 2008. It ended 2009 at 21.68.

• The yield on the 10-year Treasury note, used as a benchmark for interest rates on mortgages and other consumer loans, stands at 3.84 percent, up from 2.22 percent a year ago. Investors are no longer fleeing to the safety of U.S. government debt.

• The ICE Futures US dollar index, which measures the dollar against a basket of currencies, fell 4 percent for the year. The dollar gained 4 percent in December on expectations that a strengthening economy will lead to an increase in interest rates and make the dollar a more attractive investment. Analysts expect the dollar will remain strong early in 2010 but are divided over whether it can hold its gains if the economy struggles.

• Gold gained 24 percent for the year, rising as high as $1,227.50 and closing at $1,095.20 as investors looked for high-return ways to shield their money from inflation.

Stock market gains often come months before economic recoveries are confirmed.

That's because investors tend to bet on how they think business conditions will be six to nine months in the future. In downturns during the past 60 years, the S&P 500 index hit its bottom an average of four months before a recession ended and about nine months before unemployment reached its peak.

Sustained rally ends topsy-turvy year on stock markets 01/02/10 [Last modified: Friday, January 1, 2010 7:45pm]
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