San Diego Financial Help

A Global Financial Outlook by Carter Financial in Rancho Santa Fe

2010 was a very nice year on Wall Street. At the closing bell on December 31, the Dow Jones Industrial Average was sitting just eight points beneath a two-year high, recorded two days earlier. The S&P 500 finished up 12.78 percent for the year and the Dow, NASDAQ, and S&P all posted double-digit yearly gains. The Dow finished 2010 at 11,577.51, the NASDAQ at 2652.87, and the S&P at 1257.64.

The economy grew, but instead of a V-shaped recovery, we saw a shallow U-shaped one. The Fed did not touch the benchmark interest rate all year; it did embark on another round of monetary easing. The unemployment rate stayed consistently above 9 percent. On Capitol Hill, you had the passage of health care reforms and the Dodd-Frank Act, the surprisingly easy extension of the Bush-era tax cuts, and a resolution to the estate tax question. The real estate sector stumbled along; mortgage rates fell remarkably before rising a bit at the end of the year. Consumer spending increased, though not impressively; inflation was barely on the radar. The bull market in commodities continued. Foreign economies struggled with problems much greater than ours.

DOMESTIC ECONOMIC HEALTH

The U.S. economy comes down to the consumer, and the good news is that consumer spending increased in nine out of the 11 months on record for 2010 (it was flat in April and June). As for inflation, it was almost nil: the Consumer Price Index gained just 1.1 percent from November 2009 to November 2010, and core CPI rose but 0.8 percent in that span.

GLOBAL ECONOMIC HEALTH

It was a harsh year for the euro and for the European Union. Central banks and governments faced payback for years of loose lending and nonchalant spending. Greece was the first EU member to crack, getting a €110 billion bailout from the EU and the International Monetary Fund in May. In November, Ireland got a £72 billion EU/IMF bailout, and Portugal and Spain remain on the EU watch list.  In May, French Prime Minister Nicolas Sarkozy warned that his country would ditch the euro if Germany’s chancellor, Angela Merkel, didn’t agree to create an EU bailout fund. She did, and a €440 billion fund is now in place for any future rescues. In the third quarter of 2010, China became the  number 2 economy in the world, right behind the U.S.; Japan fell into third place.

COMMODITIES MARKETS

The bull market continued. Palladium was the best-performing marquee commodity of 2010, gaining an astonishing 97.3 percent. Other metals also posted great yearly gains: gold rose 29.8 percent to close 2010 at $1421.10 per ounce, silver gained 83.8 percent to $30.91 a troy ounce, and copper prices rose 33.4 percent to $4.4395 a pound for December. Platinum futures advanced 21.5 percent last year. Oil climbed 15.2 percent for the year, with prices finishing the year at $91.38. Natural gas was the "blown tire" of the commodities sector, with futures dropping 20.9 percent for 2010.

REAL ESTATE

This is an annual review, so let us talk about the numbers that really matter when it comes to the housing market: the year-over-year change in home sales and home sale prices. The latest available data we have comes from November 2010. In November, existing-home sales were down 27.9 percent from a year ago, though the median sale price improved by 0.4 percent at that time. New home sales were down 21.2 percent from 12 months ago, with a median sale price of $213,000 – a year-to-year retreat of 2.0 percent from $217,400 in November 2009.

LOOKING BACK...LOOKING FORWARD

It is hard to forecast the future; just ask the experts. At the start of 2010, some analysts were predicting growth of more than 3 percent for the U.S. economy (did not quite happen), an unnerving double-dip in housing prices after the end of the homebuyer tax credit (this only happened to a minor degree) and a jobless rate well over 10 percent (it stayed below 10 percent from January through November). Some voices worried about deflation; that has not happened either. And Harry Dent, the author of The Roaring 2000s who famously predicted the Dow would hit 40,000 during the last decade, forecasted a severe bear market beginning in 2010 (as you can see below, that has not happened at all).

The fact is, we do not know what 2011 will bring. There seems to be less talk of a double-dip recession in the air; the tax deal forged in Washington certainly eased the minds of the affluent (lenient estate tax, Bush-era cuts preserved) and the middle class (2 percent payroll tax reduction). Are we going to see a greatly improved real estate market in 2011? How about a big reduction in the jobless rate or a big jump in GDP? It does not seem likely. The economy and the stock market have some momentum going; if the geopolitical climate remains relatively placid and indicators continue to pleasantly surprise, 2011 could be a better year for Wall Street and Main Street than 2010.