After a brief downturn midway through the quarter, the equity markets recovered and continued the great market rebound we experienced earlier in 2009.
What Happened in the 4th Quarter 2009?
As we moved into the fourth quarter many were looking for a correction from the torrid pace the stock market had been on since early March. This seemed to be coming to fruition as the market retreated midway through the recovery. Would corporate earnings move beyond the short-term fix of job reduction and expense control? Would China and other fast growth countries continue their resurgence of slow down?
Leading this pullback were energy stocks which had done extremely well since crude hit a low of $35 bbl. Earlier in the year. Crude had risen to $80 bbl. But stalled there and then pulled back below $70 bbl. In mid-quarter. At this point, concerns emerged regarding the ongoing demand for this commodity, and as prices for crude fell, the market went down as well.
This decline was short-lived, however, and stronger economic data - slowing unemployment claims and positive GDP pushed the market back up again. Equities had been pretty much flat in the fourth quarter until a strong rally in mid to late December pushed gains up into the 3% range.
As we neared the end of the year, interest rates started to rise. The 30-year mortgage rate topped 5% by the end of the year and the long-term treasuries rose as well. The spread between the 10-year Treasury note and shorter term rates hit its widest amount ever, a signal that investors expected the economy to continue to improve strongly in 2010. At the same time, the dollar actually gained value versus the rest of the world in anticipation of rising yields.
Portfolio Adjustments We Made in 4th Quarter 2009
Against this backdrop of uncertainty, we moved some dollars out of the growth sector to protect against any large drop. We also moved dollars into the GNMA fund at Vanguard to try to capture a higher return than the low money market rates. As it turned out, the market did rebound and our strategy paid off well. See 2009 by the numbers.
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