The Market's Big Winners

01/12/2010 9:30 am EST

Focus: MARKETS

Janet Brown

Editor, NoLoad Fund*X

Janet Brown, editor of NoLoad Fund*X, recaps the extraordinary year of 2009 and tells which sectors and regions did the best and which lagged.

Markets staged a remarkable recovery in 2009, coming back from the brink of disaster thanks to unprec­edented rescue efforts by governments around the globe.

After tumbling 25% to a 12-year low in March, the Dow Jones Industrial Average staged a blistering rebound to finish the year up 22.7%. The broad market Standard & Poor’s 500 index rose 26.5% in 2009, while the small-cap Russell 2000 was up 27.2%, and the tech-heavy Nasdaq Composite index [surged] 43.9%.

The wild ride took the Dow down 53.8% from its all-time high in October 2007 to its March low, and then up 59.3% by year-end, the fastest climb since 1933. The Nasdaq Composite ended 2009 up 43.9%, which was 78.9% above its March low.

The Dow Jones World Stock Index, excluding the US, returned 39.7% last year in dollar terms.

Emerging markets funds led with the largest gains. After weathering the financial crisis better than expected, thanks in part to a large stimulus program in China and a significant rebound in global commodity prices, emerging markets funds bounced back strongly. Latin American funds surged.

Many Asian markets suffered greater losses during the sell-off only to see stronger rebounds. Large government reserves in China and relatively solvent banks, along with fast-growing economies helped rocket Chinese, Indonesian, and Indian markets to tremendous gains. European stocks, as measured by the DJ Stoxx index of Europe’s 600 largest companies, rose 28.6%. The weakest performance of the major markets was Japan, where the Nikkei finished up 19%.

The weak US dollar magnified gains in some areas more than others. For instance, Brazil gained 70% in local cur­rency and 127% in US dollars. Canada gained 33% in local currency and 57% in dollars.

Funds and sectors that had taken the biggest beating in 2008 and early last year surged. Growth-oriented strategies and sectors generally led, and larger-cap funds were stronger than smaller caps, but good performance appeared everywhere.
 
Among sector funds, tech and basic materials were strongest. Technology funds posted the best one-year returns since at least 1998. Utilities, energy, con­sumer staples, and financial services funds were the laggards.

In 2008, most bond funds suffered large losses, but Treasuries rallied in a flight to quality. Conversely, in 2009 long-term treasuries lost 13% and intermediate-term treasuries lost slightly. Other bond funds, however, had a great year. The average high yield bond fund gained more than 45% in 2009, and sits at an all-time high.

As good as 2009 was, the Dow remains down 26.4% from its all-time high in 2007. Other major indices also remain significantly underwater from their respective peaks: the S&P 500 and Russell 2000 and were off 24.9% and 24.2% through December 31, 2009. The Nasdaq Composite remained 55.1% below its high, made in March 2000.

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