Long Term Perspective

The S&P 500 jumped 13.6 percent in 2006, strengthening after a much more moderate 3.0 percent increase the prior year. The S&P 500 came in only slightly behind the other blue chip index, the DJIA which advanced 16.3 percent. At 1418, the index was at its highest year-end close since 1999. The 10-year growth rate averaged 8.9 percent last year, less than the 2005 gain of 11.3 percent. 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 but in 2006 the Dow slightly outpaced the S&P500. The S&P 500 obviously has a broader base than the industrial average, but both measure blue chip companies.

In November 2007, the S&P 500 posted a year-over-year gain of 5.7 percent, down from an increase of 12.4 percent the prior month. Measuring the year-to-date gain relative to the end of 2006, the S&P 500 is up 4.4 percent in December and is lagging its blue chip cousin’s (the Dow) gain of 7.3 percent over the same period.

The S&P 500 fell 4.4 percent in November, following a 1.5 percent boost in October. Revelations of deep losses related to subprime problems as well as concern that the Fed would not be aggressively easing led to the November tumble. November’s drop was the largest one-month decline since the 6.0 percent fall seen in December 2002.