2006 - A Quick Review

The new market year got underway yesterday with some interesting stock market action. More on 2007 in a later post. For now, let's step back for a brief review of 2006's market action.

Here are the latest twelve month returns (thru 12/29/06) for various asset classes:

S&P 500: 15.80%
3-Month T-Bill: 4.85%
LT Treas. Bonds: 1.40%
Gold (US$): 23.92%
CPI (1 Month lag): 1.97%

A couple of comments:

Most market participants were not expecting a double digit gain in the stock market at the start of 2006. But thanks to several key factors including better than expected corporate earnings, the end of Fed rate hikes, stable long term interest rates, the impact of private equity players, and perhaps the better than expected news on weather, oil, etc. Oh, by the way, the residential real estate bubble was finally pricked in 2006. Housing related equities suffered unsurprisingly, however, the economy and the rest of the stock market took the real estate troubles in stride.

Long term treasury bonds were up slightly for the year leaving long term interest rates essentially unchanged for the year. And interestingly, the CPI is running right around 2%, hardly a level for serious concern.

All-in-all, 2006 was a great year for the stock market. But that's history. We're looking forward to 2007.