As we hoped and perhaps expected, the stock market had a pleasant 11% recovery in the 4th quarter. For the year, the S&P 500 Index was flat (small caps were down 4%). Our results were in line with these overall numbers and our balanced accounts were bolstered by the unexpectedly good returns of high quality corporate bonds, municipals, and treasuries.
This year is starting off well both for markets and for our relative performance. The confidence we expressed in our October letter has been validated by evidence of a “growth patch” in the US economy. The most important issue is whether the US can “de-couple” from the sovereign problems and banking issues of Europe. We are seeing encouraging signs that indicate this de-coupling is taking place. Coming from an environment of extreme pessimism and fright, the continued market recovery is logical.
The US Presidential election is only a few months away. It is evident we will get further clarity and an airing of views on long term budget and entitlement issues. In our opinion, this discussion has been wrenching so far but can only lead to an improvement in long-term fiscal decisions. Greater clarity should bring some much needed stability to the market.