Market Update: Bull Market Continues For The Fourth Straight Year

Mark Dossa, CFP®, Senior Portfolio Manager

Equity markets enjoyed a strong 2006 as investors received much positive news during the year giving reason to cheer. The Federal Reserve Board’s decision to hold interest rates steady at 5.25%, strong corporate profits, big merger and acquisition activity and falling oil prices all helped outweigh the negatives. For the year the DOW gained a solid 16.29%, the NASDAQ rose 9.52% and the S&P 500 moved up 13.62%. The DOW hit new all-time highs in 2006 while the S&P and NASDAQ still have not reached levels achieved in early 2000. Bonds had a difficult time outperforming cash as the Lehman Brothers U.S. Aggregate Index closed the year up just 4.33%.

After a strong start to the year, stocks fell hard between May and July before embarking on a strong recovery that lasted through December. A strong consumer, encouraged by low unemployment, continued to spend contrary to what many economists were expecting due to the slumping housing market. Volatile oil prices finished the year relatively flat after spiking to the high $70’s during the summer. The continued unrest in the Middle East and midyear election results were not enough to knock equity markets off track. Instead, investors focused on good corporate profits, tame inflation, low interest rates and a moderating economy.

Large-cap value stocks trumped large-cap growth, returning 18.28% vs. 4.72%. International equities, helped in large part by the falling dollar, returned 25.89% for the year leading major stock indexes. The year 2006 marked the fourth positive year in a row for equity markets after three straight losses. While many are wondering how long this string of positive years can last, the market at current levels is not over valued based on projected earnings for 2007.

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