an tSionna: 2004

I mentioned yesterday that there seems to be a developing consensus that next year could be a lot like 2004. 2004 has been viewed as a trending listless year as stocks digested their huge gains off of the Gulf War lows.  I've talked in the past about 2004 in relation to the fact that most of the gains in the last bull market were front end and back end loaded.  That is the period from March 2003 to early 2004 and July 2006 to July 2007 saw the lion's share of the gains for that Bull Period.  That leaves a whole lot of time {a bit over 2 years and 3 months} where stocks didn't go up much.  In that period stocks gained just a bit over 8% or approximately 3.3% annualized (not including dividends).

The chart above mostly shows 2004 and you can see how the market performed.  Like 2005 it was a barbell year with stocks doing much better early and late in the year.  2004 was also a presidential election year and that may have influenced much of the action from mid-spring to late summer. 

If we are going to see a repeat of 2004 then we will have to be ready for more of a trading environment than we have seen this year.  If that is the case we will have to dust off those pages of the game plan because we haven't seen that type of action in quite a long time.  However I would caution you that the trading environment scenario is rapidly seeming to become Wall Street's consensus of what is likely to emerge next year.  Because of that I would remind you of the old saying, "Markets will do what they have to do to prove the most amount of people wrong." 

Since the economy still seems to be recovering, it seems less likely that stocks will stage a major decline next year.  However, if we should begin to see better economic data then we should not discount the possibility that stocks could see another big rise similar to 2009 at some point.  Not saying that's going to happen but I think we have to be aware of that scenario as well as what everybody else seems to be expecting.

*Long ETFs related to the S&P 500 in client accounts.