Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average declined 92.05 points, or approximately 0.9%, to finish at 10,428.05 For the year ended December 31st, 2009 the Dow Jones Industrial Average rose 1,651.66 points or approximately 19% For the decade ended December 31st, 2009 the Dow Jones Industrial Average lost 1,069.07 points or approximately 9.3%. I've published below a table of the various indices I track on a regular basis with their closing prices on December 31st of the years 1999, 2008, and 2009 and showing their overall point gains (or losses) as well their percentage changes. I thought I would take a look how things have performed over the last year and decade to see what the market may be telling us.

For the year ended December 31st, 2009: The average stock index posted a gain of 41.5% for the year. Surprisingly enough the top performing index was the Amex Disk Drive Index 'DDX' posting an approximately 125% gain followed by the MS Cyclical Index 'CYC' and the Amex Interactive Index 'IIX' each posting gains of 74.5%. The next set of top performing indices includes a majority of the high tech indices, followed by commodity based indices, then followed by a pack of indices primarily composed of Healthcare, Consumer, and Transportation indices. The worst performing indices were the Banking, Utilities, and Insurance indices.

What can we learn from 2009 year end results? Well 1st off, the indices that are historically more volatile performed the best in 2009. That is probably because they sold off 1st and the most during the financial crisis of late 2008. Sectors such as commodities which benefit from low interest rates were the next best performing indices. The lower performing indices were the ones which are most likely to have new regulation enacted in 2010. This list includes healthcare, utilities, transportation, and financial services.

What are the results of 2009 telling us about 2010? Well, the forecasting crystal ball gets a little cloudier due to the way the financial crisis of 2008 skewed the start of 2009, but I see three (3) main messages for 2010 in the results of 2009. The 1st being that continued low interest rates will continue to benefit commodities. The 2nd being that the pain isn't over year in the financial services sector; and finally the overall economy and the American consumer isn't going to find much enjoyment in 2010. This third messages is based upon the low relative performance of the MS Consumer Index with a 21.8% return and the Dow Jones Industrial Average with a 18.8% return.

For the decade ended December 31st, 2009: The performance results for the decade are quite different from the last year, and they tell a different story. The average stock index posted a 27% gain, while the broader market as measured by the S&P 500 declined 24%. This disparity is primarily the result of two (2) factors. The 1st being the bursting of the dot com bubble which occurred shortly after the start of the decade, and as a result we started the decade from lofty levels resulting from a bubble that had not yet burst. The second factor being the tremendous gains from a small number of commodity related indices.

The top performing index for the decade was the Amex Gold Bugs Index 'HUI' with an approximate return of 481% followed by the Natural Gas Index 'XNG' with a return of approximately 319%, and the Amex MS Commodities Index 'CRX' with a return of approximately 270%. In fact 6 of the 7 top performing indices were commodities related with the lone exception being the Amex Biotech Index 'BTK' with posted a gain of approximately 141%. The next tier of top performing indices were primarily consumer based indicating the strength of the American consumer during the decade. The rest of the indices, which comprised approximately 1/2 of the indices I track, were primarily composed of high tech, and financial services. The worst performing sector index of the decade was the Amex Airline Index 'XAL' with a 78% decline for the decade. This poor index had the misfortune of being hurt by the September 11th, 2001 terrorist attacks, and rising commodity prices.

What can we learn from the results of the decade? The 1st decade of the 21st century saw unusually low interest rates, that were much lower than they should have been given the level of inflation. Those abnormally low interest rates contributed to outsized gains in the commodities sectors. The consumer related sector did well as the american consumer loaded up on debt. And probably the most important lesson of the decade concerns the bursting of bubbles, as we had two (2) of them burst during the decade; the damage caused by the bursting of a bubble can be very long lasting and painful. A majority of the decades worst performing sector indices were high tech indices heavily tied to the dot com bubble, the rest were tied to the housing bubble.

What are the results of the last decade telling us about the next? Well, in looking how the decade performed and how 2009 faired as a year as well I see the following. First, look for commodities to continue to perform as long as interest rates remain low. Secondly, much of the decades success was tied to the increasing debt load of the american consumer, and with that party now ended it is going to be tough for consumer related companies. The third is that it could take another decade before the high tech indices reach their dot com bubble highs. And finally the financials as a group could be feeling a lot of pain for a long time to come. With the housing industry joined to the hip of the banking sector like a Siamese twin, I do not see the housing market recovering at the earliest until late this decade, if even that soon.

For the record. I do not try force results from the data to fit my personal views, I would never make any money trading that way. What I do is try to look at the market data in an unemotional manner and simply see what the market is trying to tell anyone who will listen.

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