4Q09 FUNdamental Facts
1. In the last 75 years of index history, the annual return of the S&P 500 exceeded 2009’s return of 26.5%, 20 different times, or 27% of the time.
2. Even though the average annual return of the S&P 500 was – 1% for the past 10 years, the latter suggests that on average, the S&P 500 return will equal or exceed 26.5% every four years.
3. In the past 10 years, this happened twice: 2003 and 2009. In spite of a strong year, the S&P 500 still remains 28 percent below its October 2007 peak.
4. The stock bull market of the 1980’s is largely credited to the historic rise and decline in interest rates, not significant growth in corporate earnings. Falling interest rates translated into surging P/E ratios with only a little increase in earnings.
5. In the 1980’s, the S&P 500 rose 227% while earnings rose only 54%. Last year, lifetime interest lows were seen across the globe.
6. True, earnings did improve last year, due mainly to one-time events (employment reductions and not replenishing inventories), but interest rates don’t have room to go substantially lower and corporate managers used up their ‘one-time opportunity’ to prop up ‘earnings’ in the recession.
