Dear Mom:
Well, will wonders never cease? The new millennium isn't even a month old, and what do I get? An e-mail from my mother. As you know, I am not exactly a techno whiz, so an e-mail to me from my mother was a source of great amusement to Carmen and Hoss. I logged on to the computer on Saturday morning, and a little voice told me I had mail. I went to the driveway, opened the mailbox and it was empty. The dogs and Carmen saw me on the porch, and with their eyes, asked me what I was doing. I planned to call you to talk about the markets, but since this is the 00s, I'll use e-mail instead.
The new millennium has finally arrived for most of us, though the purists have started making their plans for the true beginning of the third millennium on Jan. 1, 2001. For most of us, mom, the Y2K gnat appeared merely as monologue material for late-night television hosts. While there may be some debate as to when the century ends, anybody who still has blank checks reading "19__" and pessimists who prepurchased a tombstone reading, "Died: 19__" must certainly agree that the 1900s are definitely over. With that in mind, Mom, I will give you an overview of 1999, and then let you know what I think 2000 has in store for us.
In 1999, the Dow Jones Industrials Index racked up a total return of 27.2 percent, and the NASDAQ Composite gained 85.6 percent in price. By these standards, the S&P 500 Index's total return of 21.0 percent made it a "laggard." What was amazing about the S&P 500s 1999 return was that it represented the fifth year in a row that the S&P had returned more than 20 percent. The answer to the question you're burning to ask me, mom, is no, the S&P has never done this before! Mom, I even found some data dating back to 1802 indicating that prior to this current string of 20 percent gains, the market never posted more than two consecutive years of 20 percent gains in a row. Over the last five years, the S&P returned 221.8 percent, or 26.3 percent per year. By comparison, the annualized return for the last 100 years is 10.3 percent. Mom, if we look at only the last 50 years, the annualized return for the S&P is 13.6 percent, and 17.1 percent over the last quarter-century. No matter how you slice and dice it, mom, the equity market performance of the last five years was well above trend. Now you must be saying to yourself, I guess now you're going to turn as bearish as a bumblebee.
Not quite, mother! I am still bullish. Don't get me wrong, there are some reasons for concern; variations, irrational exuberance and rising interest rates, but I think the balance of evidence still favors the bulls. It takes forever to hunt and peck an e-mail letter, so I'll just hit the high spots.
Four reasons why I am still bullish:
1. Earnings growth has been terrific. S&P earnings rose 14 percent last year, and we are forecasting a gain of 10.3 percent for first quarter of the year and 8.4 percent for the full year. Earnings growth has slowed but 8.4 percent is still well above the long-term average growth rate of 6-1/2 percent a year.
2. The first quarter of this year the IRA, 401(k) and other retirement monies will flow into the market as investors start to fund their retirement accounts for the year.
3. The current economic expansion is now just about the longest in post-World War II history. I believe the economic growth will start to slow, alleviating inflationary fears. The economy and corporate earnings growth will slow down, but still be positive enough to allow the stock market to post a modest gain for the year.
4. The year 2000 is a presidential election year, and here are three historical facts worth noting:
a) Since 1926, the S&P 500 total return has never posted a loss of 10 percent in an election year.
b) The market has risen in 16 of the 18 election years (89.8 percent)
c) The average total return for all presidential election years is 14.8 percent
Now, for the most important element. What stocks to buy? On Tuesday, Jan. 4, our firm, Salomon Smith Barney, held its annual Top Picks Conference. Every analyst has to select one stock as his/her Top Pick for the year. Because I love you and want to hear back from you, I am not going to give you my favorite picks, but will make them available to you and any of your friends. You may contact me, your son Bill Creekbaum, CFP, at 698-8720 for the list.
On a closing note, there is a cost to having e-mail. I have been receiving e-mail notices from my friend, Pam Graber, of the Carson-Tahoe Hospital Foundation about our monthly meeting for the past four weeks. Two days after the scheduled meeting, I checked my e-mail. Needless to say, I was embarrassed to tell her why I hadn't made her meeting!
Mom, do you think I'm "e-responsible?" We'll talk later this week!
Love, Billy
William Creekbaum, MBA, CFP, a Carson City resident, is vice president-investments of Salomon Smith Barney, a financial services firm serving Northern Nevada.
