Monday, December 31, 2007

December 2007 Rewind - Santa's Folly

Apparently Rudolf got lost this year as the vaunted "Santa Claus Rally" became "Santa's Folly." Indeed, with the S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices falling -0.86%, -0.80%, and -0.20%, respectively, the equity markets put in their poorest December performance since 2002.

Although there were more positive days on balance throughout the month, the markets could never quite get over their collective disappointment with the Federal Reserve's mere quarter-point rate cut on the eleventh, and fears stoked by former Chairman Greenspan's subsequent stagflation warnings. Apart from that, the typical positive holiday seasonality and pervasive sovereign fund acquisition news were simply overcome by a barrage of further subprime writedowns, mixed retail sales reports, geopolitical events, heated inflation readings, and tepid home sales news.

Interestingly, Large-Cap and Growth stocks continued to outperform this month even as the Small-Cap and Value stocks overwhelmed the indices into the red. On this New Year's Eve with all the volatility of the second half fresh on our minds, it is easy to forget that the major indices still managed to close ahead on the year, as follows:

2007 Index & ETF Returns (excluding & including dividends):
  • SPY (S&P 500) +3.5%/ +5.2%
  • DIA (Dow Jones Industrials) +6.4%/ +8.8%
  • QQQQ (NASDAQ 100) +18.7%/ +19.0%

And now we have a full 250 trading days ahead of us to celebrate in 2008. Cheers!

The Style Box below was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV).

The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

Sentiment: Negative
Volatility: Moderately High (VIX 18-25)
Direction: Lower

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