Wall St closes out '09 with best gains since 2003

NEW YORK: U.S. stocks ended 2009 on Thursday, Dec 31 with their best gains since 2003, driven by optimism about the economy's recovery and a brighter outlook for profits, according to Reuters.

The benchmark Standard & Poor's 500 index rose 23.5 percent for the year, while the Dow climbed 18.8 percent and the Nasdaq jumped 43.9 percent from its close on Dec 31, 2008.

It was the market's first annual advance in two years. In 2008, the S&P 500 slid 38.5 percent when the economic crisis led to Wall Street's worst year since the Great Depression.

For Thursday's session alone, though, U.S. stocks declined, with a late-day sell-off pushing all three major indexes down about 1 percent as investors sold some of the year's best-performing stocks to lock in some of 2009's substantial gains.

Most of the year's advance is the result of a nine-month rally, led by gains in TECHNOLOGY [
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"It really was a turnaround year," said Charles Lieberman, chief investment officer of Advisors Capital Management, LLC in Paramus, New Jersey. "It shows how much of a recovery there's been."

American Express, Microsoft and IBM were the Dow's top gainers for the year. All three ended Thursday lower, however.

On the other hand, General Electric, long considered a bellwether, finished second to last among the Dow components in terms of 2009 performance, with big oil producer Exxon Mobil Corp in last place.

LIft from earnings

Signs of an economic rebound, including more than 70 percent of companies beating profit expectations in the second quarter, have driven the S&P 500 up 65 percent since its March 9 closing low. The dollar's weakness throughout much of 2009 also gave the market a strong boost on hopes about exports.

Despite optimism about 2009, Wall Street registered its first-ever negative decade on a total return basis even with dividends reinvested. The S&P 500 is down about 10 percent for the decade, on that basis.

After a fast sell-off late in the session, the Dow Jones industrial average ended down 120.46 points, or 1.14 percent, at 10,428.05. The Standard & Poor's 500 Index slid 11.32 points, or 1.00 percent, at 1,115.10. The Nasdaq Composite Index lost 22.13 points, or 0.97 percent, to close at 2,269.15.

U.S. financial markets will be closed on Friday for New Year's Day.

Winning quarter, losing week

For the fourth quarter, the Dow rose 7.5 percent, the S&P 500 gained 5.5 percent and the Nasdaq jumped 6.9 percent.

But for the week, the Dow was off 0.9 percent, the S&P 500 was down 0.4 percent and the Nasdaq fell 0.7 percent.

The S&P 500's top-performing stock for the year was XL Capital -- up an eye-popping 395.4 percent in 2009. On Thursday, however, XL Capital's stock slipped 0.4 percent to end at US$18.33 on the New York Stock Exchange.

Citigroup, down 50.7 percent for the year, was among the worst performers in the S&P 500.

IBM rose 55.5 percent for the year, Microsoft gained 56.8 percent in 2009 and American Express jumped 118.4 percent. For the day, IBM fell 1.3 percent to US$130.90, Microsoft dropped 1.6 percent to $30.48 and American Express declined 0.7 percent to US$40.52.

To recap, the S&P 500 has closed out its first annual advance in two years, underpinned by strength in the technology and materials sectors on hopes that the economic recovery will spur a rebound in capital spending and fuel demand for natural resources.

The benchmark index ended 2009 up 23.5 percent on the year, reversing a slide of 38.5 percent in 2008. The S&P 500 is now off 28.8 percent from its October 2007 record close.

The run-up in sectors like technology underscores the extent of the damage done to financial stocks in the credit crisis of 2008. Financials were once the largest sector in the S&P 500, but tech is now the biggest. The top 10 S&P 500 stock performers of 2009 do not include a major U.S. bank. Heading the list is Bermuda-based insurer XL Capital.

Citigroup has lost half its value this year, putting it among the S&P 500’s top 10 laggards. But Ford is among the standouts as the automaker continues to steer itself through the turmoil that sent rivals Chrysler and General Motors into bankruptcy.

Further upside

Analysts see further upside in stocks in 2010 if the recovery proves sustainable. The U.S. unemployment rate is still at 10 percent -- a 26-year high.

The Dow is down 26 percent from its record closing high on October 9, 2007, while the S&P 500 is down 29 percent from its record close on that same date. The Nasdaq is down 55 percent from its March 10, 2000, closing high. A drop of 20 percent or more technically signifies a bear market.

"I don't think we're overbought," Lieberman said.

Emerging markets performed better than the United States and other developed markets, with China's key stock index ending with an 80 percent gain and Brazil's stock market up 83 percent for the year.

The S&P information technology sector is up 59.9 percent for the year, while the S&P materials sector is up 45.2 percent.

Telecommunications was the worst-performing S&P 500 sector, with a gain of just 2.6 percent for the year, followed by utilities, up 6.8 percent.

Adding to Thursday's bearish tone, the December reading of the Institute for Supply Management-Chicago index, also known as the PMI or purchasing managers' index, was revised downward from the level reported on Wednesday.

Volume was light, with many investors out for the holidays. Just 679.9 million shares traded on the NYSE, well below last year's daily closing average of 1.49 billion.

On Nasdaq, about 1.27 billion shares traded, also sharply below last year's daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of 2 to 1, while on the Nasdaq, about 17 stocks fell for every 10 that rose. - Reuters