Last Week's Market.

Barrons on last weeks market. {Excerpt with my highlights}

This Picture Looks Familiar

By MICHAEL SANTOLI

There's been queasy tedium in staring at "key" index levels that "should hold," while stocks move tick-for-tick with the euro, and traders wonder whether fundamentals-driven funds have cash to express their view that "stocks are cheap." The longer view is one of much energy expended to go nowhere.

Admonitions to keep the big picture in mind usually take the form of a resigned lament. Large-cap stocks delivered a negative annualized return over the past 10 years, without even considering inflation or opportunity cost. A generation of investors who did the "right thing" have nothing to show for it.......Agreed, all around. But what do these sorrowful yesterdays tell us about all our tomorrows?

Ten years ago–an exceedingly poor time to buy the major indexes–the New Economy was supposed to have banished the business cycle. Now we are said to face a new normal of suppressed growth for years. Back then, we had a putative federal surplus; today, deficits look intractable. In 2000, government was deregulating and CEOs were celebrities. Not so much anymore.....

....The public at century's turn was in lust with stock investing and ebullient about the economic future. Last month, a Newsweek cover advocated trashing the 401(k). ......Does this mean that today's unhappy brew of worry and want should usher in an unexpectedly generous investment regime....?

This is quite unlikely, mostly because equity valuations haven't cheapened nearly enough for a long string of above-average returns to ensue, and there will be no help from falling debt costs.  But it does mean that something approaching the historical market returns of the pre-bubble period has become a decent bet again. The S&P 500 is down by a quarter since 2000, while its companies' profits have doubled and long-term interest rates have been halved.

Near the recent market lows, the comprehensive Wilshire 5000 index was flirting with a trailing three-year annual total return of minus 10%. Since 1970, it has had a 10% or greater three-year annual loss three times: near the 1974 market low, at the 2002-2003 bottom and in early 2009. In the first two instances, the markets didn't quickly turn for the better as the trailing loss hit 10%. But both times, after first reaching a 10% three-year loss, the market produced a handsome annual return over the next three years—22% and 18%, respectively.......

Link:  "This Picture Looks Familiar"