We start 2010 with a much brighter situation than a year ago. The Standard and Poor's 500 Index climbed more than 24 percent in 2009 after taking a precipitous 37 percent decline in 2008. This reversal represents one of the biggest two-year swings in stock returns since 1974. The housing sector decline seems to have bottomed out, and many economists have pronounced the recession in the U.S. to be over. However, some noted that the celebrations were not universal as the job market continues to be in the doldrums, with younger and less educated job-seekers posting jobless rates significantly higher than the overall average. The banking industry seems to have failed to absorb the lessons of its recent behavior, earning taxpayers' fury as performance bonuses and pay at some Wall Street banks soared at yearÂÂ’s end. There is worry that Wall Street's powerful lobbying efforts will stymie government policymakers' attempts to rein in excesses, resulting in puny regulations incapable of preventing a similar crisis in the future.
The job market and the balance of power between Washington and Wall Street remain wild cards as we enter 2010. High unemployment - the nationÂÂ’s jobless total hit 10.2 percent in October - is still causing consumers to limit spending. Economists believe it wonÂÂ’t feel like a recovery until the jobless statistics improve. As the administration considers additional means to stimulate the economy and spur job creation, some analysts predict a rebound as soon as spring - others believe it might not be until late 2010 or 2011.
Stock market experts increasingly expect the overall health of the economy to influence the performance of the stock markets. This might seem like an obvious correlation, but it has not been a favored viewpoint of some investment professionals, who believe that a good stock would perform regardless of other circumstances. There are many historical precedents prior to the financial meltdown in 2008 to back this up, but we are now in unchartered territory with no real consensus on where the markets are headed. The economy might not follow predictable patterns, but it will be a factor in stock market performance. Here are some of the key issues:
We are not out of the woods yet, but the consensus is that recovery is under way. Just as the recession was atypical, we are told that the path to recovery will be equally hard to predict. No one knows where 2010 is headed, but the economy has turned a corner. We could see slow growth for the first half of the year, but analysts are anticipating modest market gains fueled by corporate earnings growth.