A Few Numbers That Say A Thousand Words About 2012

A Few Numbers That Say A Thousand Words About 2012

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By Michael Lombardi, MBA for Profit Confidential
If today were the last trading day of the year, the stock market would have been up 5.4%, the smallest gain of the past three years. But we have 15 trading days left until December 31, 2011. And I continue to be in the camp that believes the Dow Jones Industrial Average will end the year higher than it opened for the third consecutive year. (See: Stock Market: Where It Will End 2011.)
Lets take a quick look at the opening and closing numbers for the Dow Jones Industrial Average since 2009:
Started 2009 at 8,776 and ended 2009 at 10,428; up 18.8% for the year.
Started 2010 at 10,428 and ended 2010 at 11,557; up 10.8% for the year.
Started 2011 at 11,557 and currently at 12,184; up 5.4% for the year so far.
The easy money with the Dow Jones Industrial Average was made in 2009. That year, the worlds most widely followed stock market index fell to a 12-year low of 6,440 on March 9. The year 2009 was marked by investor fear. Investors flew away from the 30 big stocks that made up the Dow Jones Industrial Averagea classic contrarian mistake; you want to buy when others are selling, as opposed to selling when the herd sells. The smart money was buying stocks in 2009 amid general investor panic.
The year 2009 was the biggest moneymaker for the Dow Jones Industrial Average and the stock market in general subsequent to the 2008 credit crisis. Now notice how, in 2010, stocks returned about half of what they made in 2009, again according to the Dow Jones Industrial Average.
When we look at 2011, we see the same pattern: stocks are returning about half of what they returned in 2010. The annual gains for the Dow Jones Industrial Average over the past three years have been 18.8% in 2009, 10.8% in 2010, and 5.4% so far in 2011. What does this tell us?
The bear market rally in stocks that I have been writing about since March of 2009 is getting tired and long in the tooth, as they say. If the pattern continues, 2012 could be flat year for stocks, at best. But we mustnt forget: 2012 is a presidential election year in the United States. Over the past 60 years, the Dow Jones Industrial Average has gained in every presidential election year except for 2000 and 2008 (Source: Lombardi Financial).
Yes, past statistics (such as stock performance during presidential election years) are important as a guide to where the stock market is headed. But we must keep it in perspective that the rally in the Dow Jones
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