2010 Another Positive Year After 2009-the reverse of the normal Presidential cycle pattern

2010 ended up being a year with positive double digit returns for the second year in a row for major North American and European markets, which is the reverse of the normal Presidential cycle, which sees the indexes flat to down for the first two years of a Presidential term and then a strong performance in the two years running up to the election. The Nasdaq was up 16.9%, the TSX Composite was up 14.5%, the S&P500 12.8%, the Dow Jones 11% and the FTSE100 9%. In Asia on the other hand, performances were much more subdued, with the Hang Seng only up 5.3%, the Nikkei225 down 3% and Shanghai down 14%.

After a very strong 2009, with the S&P500 up 23.5% for the year and 67% from the 666 low on March 9th, it was surprising to many observers that the index was able go up more than 10% the following year. In fact, at the end of August 2010, ┬áthe S&P was down 5.9% and the Nasdaq down 6.8% and it took the best September since 1938 to turn the year positive. Of course this was after the Fed’s Jackson Hole meeting, when Bernanke first announced that QE2 would be happening, so in essence the last four months of the year saw the S&P up 18.7% and the Nasdaq 23.7%. The power of liquidity injections proved once again to be the most important effect in the short term, overpowering concerns about a slowdown in China, the Bush tax cuts not being renewed and the continued collapse of smaller Euro area countries such as Ireland and Portugal.

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