Long Term Perspective

The S&P 500 increased 3.0 percent in 2005, the third straight annual gain but a significantly smaller one than in the two previous years. The S&P 500 posted a better showing than the DJIA, the other blue chip measure. At 1248, the index was at its highest year-end close since 2000. The 10-year growth rate averaged 8.9 percent this year, less than the 2004 gain. Studies have shown that the long-term average return in the stock market - dating back to the turn of the (20th) century - was roughly 10 percent per year.

Short Term Perspective

Between mid-2003 and through 2004, the S&P 500 posted steady gains on a year-over-year basis. In the second half of 2004, the gains moderated, although year-over-year gains continued in 2005, but they were smaller. Throughout 2005, year-over-year gains in the S&P 500 swamped gains in the DJIA. The S&P 500 obviously has a broader base than the industrial average, but both measure blue chip companies.

In November 2006, the S&P 500 posted a year-over-year gain of 12.1 percent, down from October's on the year increase of 14.2 percent. Measuring the year-to-date gain relative to the end of 2005, the S&P 500 is up 12.2 percent but still below that of the Dow Industrials.

The S&P 500 was up 1.6 percent in November, half the 3.2 percent recorded in October. Since June, when the index was unchanged on the month, the increase had accelerated each month until November. Investors have been worried about the future of Federal Reserve policy. Although the Fed did not raise the federal funds rate target at the August, September and October FOMC meetings they reassured investors that they would closely monitor inflationary pressures and economic conditions.