Market Commentary: Equity markets around the globe rallied strongly this past week. The end-of-the-year is now just three trading days away, and all major indexes have a good chance of finishing the year in the plus column. Such a finish was far from certain many times during the year. All major indexes were in negative territory in early March after sporting healthy returns the prior week. A correction in late July and early August caused these same indexes to give up their double-digit year-to-date gains and become dangerously close to slipping into negative territory again. One more correction started to take hold in October, resulting in a test of the August lows. For now, those lows have held, and the market seems determined to end the year on a positive note.
The equity market’s gains of the past week have been the bond market’s loss. The 10-year Treasury yield closed today at 4.28% after dipping below 4.0% for a brief period last week. Much of the equity market woes of 2007 are tied to losses in the subprime credit markets. However, government issued notes and bonds were a different story. For high-quality Treasury securities, the yields dropped and prices rose every time the equity markets weakened this year. This made Treasury securities one of the best diversifying asset classes of 2007.
Sectors: Energy, Materials, and Utilities were the leading sectors for most of calendar year 2007 and are now finishing the year in that position. It was by no means a smooth ride. Energy had five pullbacks of -6% or more, Materials had two double-digit corrections including a nearly -16% mid-year decline, and the often placid Utilities sector had a mid-year correction of nearly -12%. Of course, the real problem area was the Financial sector, which experienced its own bear market by dropping more than -24% at one point. The Consumer Discretionary sector narrowly missed having its own bear market by holding its decline to just under -19%.
Styles: Mid Cap Growth turned in the best performance for 2007 thanks to a strong showing in the first half of the year. The Large Cap Growth style took over the leadership reins starting in July and was one investment segment that managed to avoid having a double-digit correction during the year. On the other end of the style spectrum are the Micro-Caps, which lagged the market for most of the year and appear destined to finish in negative territory.
International: International markets also underwent a series of declines similar to the US, although the superior strength of the international markets generally meant that their pullbacks were also of greater magnitude. Latin America is finishing at the top of our rankings for 2007 even though it underwent four separate corrections of more than 10%, one of which turned into a -22% mid-year bear market. China spent more time atop our rankings than any other global region this year and will likely finish the year with the best returns. However, China’s stellar performance was punctuated with two separate bear market intervals where it posted declines of -21% and -25%. Japan will likely end the year with a loss and at the bottom of our rankings where it stayed for most of 2007.
The equity market’s gains of the past week have been the bond market’s loss. The 10-year Treasury yield closed today at 4.28% after dipping below 4.0% for a brief period last week. Much of the equity market woes of 2007 are tied to losses in the subprime credit markets. However, government issued notes and bonds were a different story. For high-quality Treasury securities, the yields dropped and prices rose every time the equity markets weakened this year. This made Treasury securities one of the best diversifying asset classes of 2007.
Sectors: Energy, Materials, and Utilities were the leading sectors for most of calendar year 2007 and are now finishing the year in that position. It was by no means a smooth ride. Energy had five pullbacks of -6% or more, Materials had two double-digit corrections including a nearly -16% mid-year decline, and the often placid Utilities sector had a mid-year correction of nearly -12%. Of course, the real problem area was the Financial sector, which experienced its own bear market by dropping more than -24% at one point. The Consumer Discretionary sector narrowly missed having its own bear market by holding its decline to just under -19%.
Styles: Mid Cap Growth turned in the best performance for 2007 thanks to a strong showing in the first half of the year. The Large Cap Growth style took over the leadership reins starting in July and was one investment segment that managed to avoid having a double-digit correction during the year. On the other end of the style spectrum are the Micro-Caps, which lagged the market for most of the year and appear destined to finish in negative territory.
International: International markets also underwent a series of declines similar to the US, although the superior strength of the international markets generally meant that their pullbacks were also of greater magnitude. Latin America is finishing at the top of our rankings for 2007 even though it underwent four separate corrections of more than 10%, one of which turned into a -22% mid-year bear market. China spent more time atop our rankings than any other global region this year and will likely finish the year with the best returns. However, China’s stellar performance was punctuated with two separate bear market intervals where it posted declines of -21% and -25%. Japan will likely end the year with a loss and at the bottom of our rankings where it stayed for most of 2007.
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