Replies to post #8767 on Sector Investing

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Amateur Investors Weekend Market Analysis (12/5/09)

http://www.amateur-investor.net/Weekend_Market_Analysis_Dec_5_09.htm

As I mentioned last weekend the month of December historically has been the best performing month for the Dow since 1896 with the Dow having a 70.5% chance of having a positive return with an average return of 1.38%.

   Dow Monthly Returns since 1896 
      Positive  Negative     %         %      Average 
      Returns   Returns   Positive  Negative  Return 
 Jan 	73 	 40 	   64.6      35.4     0.97 
 Feb 	57 	 56 	   50.4      49.6    -0.29 
 Mar 	68 	 45 	   60.2      39.8     0.77 
 April 	63 	 50 	   63.0      37.0     1.22 
 May 	58 	 55 	   51.3      48.7     0.02 
 June 	56 	 58 	   49.2      50.8     0.25 
 July 	70 	 44 	   61.4      38.6     0.41 
 Aug 	74 	 39 	   65.5      23.5     1.27 
 Sep 	47 	 66 	   41.6      58.4    -1.15 
 Oct 	65 	 58 	   57.5      42.5     0.19 
 Nov 	68 	 45 	   60.2      39.8     0.90 
 Dec 	79 	 33 	   70.5      29.5     1.38

Meanwhile if we take a look at the historical returns in the Dow by decade since 1900 on a Non Inflation Adjusted basis the Dow has only had one decade where it had a negative return which was in the 1930's. However as you can see unless the Dow rallies over 1000 points in the next 3 weeks this will only be the 2nd Decade in which the Dow has had a negative return. Meanwhile also notice that the Dow gained 206% in the 1980's and 318% in the 1990's so there was a 20 year period in which the Dow gained a total of 524%. My guess is many of us will never see a 20 year period like that ever again.

Returns by Decade (Not Adjusted for Inflation)  
 	                Closing 	Total Return 	 
 	                Price 	        by Decade 	 
         12/31/1899 	65.73 		 
         12/31/1909 	99.05 	          50.7 	1900's 
         12/31/1919 	107.23 	           8.3 	1910's 
         12/31/1929 	248.5            131.7 	1920's 
         12/31/1939 	150.2 	         -39.6 	1930's 
         12/31/1949 	200.1             33.2 	1940's 
         12/31/1959 	679.4 	         239.5 	1950's 
         12/31/1969 	800.4 	          17.8 	1960's 
         12/31/1979 	898.7 	          12.3 	1970's 
         12/31/1989     2752.2 	         206.2 	1980's 
         12/31/1999    11497.0 	         317.7 	1990's 
          12/4/2009    10388.9 	          -9.7 	2000's

Meanwhile if we look at the historical returns in the Dow by decade using values that are Inflation Adjusted based on Robert Shiller's work you can see quite a difference in the returns. Based on Inflation Adjusted values notice the Dow had negative returns in the 1910's, 1930's, 1940's, 1960's and 1970's which is vastly different than the Non Inflation Adjusted Returns. Also notice that this decade is going to finish with a substantial loss using an Inflation Adjusted value. Thus when looking at the historical returns based in real dollars you can see Inflation really takes a big bite out of the actual returns in the market.

Returns by Decade (Adjusted for Inflation) 
 	                Closing 	Total Return 	 
 	                Price 	        by Decade 	 
      12/31/1899         1802.77 		 
      12/31/1909 	2147.43 	 19.1 	1900's 
      12/31/1919 	1228.85 	-42.8 	1910's 
      12/31/1929 	3129.27 	154.7 	1920's 
      12/31/1939 	2323.73 	-25.7 	1930's 
      12/31/1949 	1836.45 	-21.0 	1940's 
      12/31/1959 	5005.21 	172.5 	1950's 
      12/31/1969 	4598.44 	 -8.1 	1960's 
      12/31/1979 	2368.40 	-48.5 	1970's 
      12/31/1989 	4728.98 	 99.7 	1980's 
      12/31/1999        14796.17 	212.9 	1990's 
       12/4/2009        10388.90 	-29.8 	2000's

Finally keep a close eye on the US Dollar (USD) which is attempting to rally once again. As we have seen the past few years there has been a general inverse relationship between it and the market. When the USD has risen (points A to B) the S&P 500 has fallen (points C to D) and when the USD has fallen (points B to A) the S&P 500 has risen (points D to C). Meanwhile since Spring the US Dollar has been in a downward channel (yellow lines) and each time it has risen to the top of the downward channel it has failed to rally above it. Thus if the USD were to actual rise above the top of its current downward channel then that may signal a shift in longer term direction and could eventually lead to some selling pressure in the market.


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