2005: A Very Good Year?


With the start of a new year, now's a good time to look at some of the numbers, weigh some of the statistics, and understand where the gains and losses came from during the past fiscal year.

The S&P 500 stock index was up 4.9 percent in 2005, less than half of the 10.4 percent average return achieved over the last 50 years (1956-2005). Over the last half-century, the S&P 500 has produced a positive return in 38 years (76 percent of the time) and been down the other 12 years (24 percent of the time). All numbers are total-return performance results.

Both mid-cap stocks (as measured by the S&P 400 Midcap Index) and small caps (as measured by the Russell 2000) reached all-time highs in 2005. Midcaps were up 12.6 percent for the year after peaking on Dec. 14. Small-caps were up 4.6 percent after hitting its apex on Dec. 2. Both results are total-return figures.

Over the last 243 months (20 years, three months) through Dec. 31, the S&P 500 is up 1,000 percent (total return) or an annualized 12.7 percent. That period covers 5,111 trading days, with 2,735 days being up (54 percent of the time) and 2,376 days down, or 46 percent of the time.

In the last 10 years (1996-2005), the best performances of the S&P 500 over 12 consecutive months was the period from August 1996 to July 1997, when the index was up 52 percent (total return). The worst 12-month stretch started October of 2000 and ended the next September, and produced a 27 percent total-return loss.

The small-cap Russell 2000 was up 4.6 percent (total return) in 2005, trailing the large-cap S&P 500 by positive .3 percent. However, over the last 10 years (1996-2005), the Russell 2000 has beaten the large-cap S&P 500 by .2 percent compounded per year.

The Russell 1000 stock index (largest 1,000 U.S. stocks) represents 90 percent of the domestic stock capitalization, more than the 79 percent represented by the S&P. The Russell 1000 was up 6.3 percent (total return) in 2005, 1.4 percent better than the 4.9 percent turned in by the S&P 500. The "value" component of the Russell 1000 was up 7.1 percent versus the 5.3 percent produced by the "growth" component of the index.

On to tech stocks: The NASDAQ was up 1.4 percent in 2005 (not counting the impact of dividends). If you missed the five best days of the NASDAQ in 2005, your total return fell to a 7.5 percent loss for the year. If you avoided the five worst days of the NASDAQ in 2005, your return jumped to 11.1 percent.

As far as stock evaluations are concerned, the P/E ratio of the S&P 500 at the end of 2005 was 18.7, down from 21.0 P/E ratio a year earlier. The index's long-term 70-year historical average P/E ratio is 15.7.

The international stock index EAFE was up approximately 14.7 percent in 2005. Over the last 10 years, the EAFE index has trailed the S&P 500 by positive 60 percent in aggregate. All numbers are total-return performance results.

Meanwhile, the yield on the 10-year Treasury note finished 2005 at 4.39 percent, the highest year-end yield on the 10-year note since its 5.02 percent yield from Dec. 31.

Craig Langweiler is president of the Langweiler Financial Group, in Newtown. He can be reached at 215-860-8066 or at: clangweiler@ americanportfolios.com.



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