Thoughts On The First Half

Improvement comes slowly.

By SHARE

The market is passed the half way mark for 2009, and it's good riddance to the first two quarters. Here's a quick rundown of some of the more interesting metrics for the first six months.

The S&P 500 returned 1.77 percent and increased its market cap by $177.968 billion, according to Birinyi Associates.

What strategy worked best? Birinyi again:

For the first half of 2009 the best strategy was to buy the 50 stocks that did the worst in 2008. This group of fifty returned, on average, 35%. It is interesting to note that the better a stock did in 2008 the worse it has done in 2009. We would also note that only six of the ninety possible strategies have lost money this year.

The current bull market, which began on March 9th, can best be characterized as being lead by those stocks with the worst trailing fundamentals . . .

A few other first-half data points:

From USA Today's Matt Krantz ( via Twitter):

"Dividends still hurting. Just 233 S&P 500 co's increased in Q2, record low, S&P says. 250 decreases, second most cuts ever."

And:

"First half of 2009 slowest 6-month period for private-equity investors since 2002, PitchBook. Only 174 deals done in 2Q."

Taken together (gains led by beat-up names in stocks, stingy dividends, timid investment) and this market still looks wobbly, despite the recent bullishness. So what comes next? More muddling through, according to PIMCO's Bill Gross. In the bond giant's latest investment letter, he repeats the "new normal" scenario for the economy and markets where the damage done by both the financial crisis and longer-term structural shifts (read: deleveraging and a doggedly frugal consumer) keeps economic growth and portfolio returns on the ropes. Here's a key excerpt, but read the whole thing:

Greed will come again. But for now, the trend is the other way and it promises to persist for a generation at a minimum. The fact is that American consumers have suffered a collapse in wealth of at least $15 trillion since early 2007. Global estimates are less reliable, but certainly in multiples of that figure. And when potential spenders feel less rich by that much, the only model one can use to forecast the future is a commonsensical one that predicts higher savings, lower consumption, and an economic growth rate that staggers forward at a new normal closer to 2 as opposed to 3½%. There‚Äôs no magic in that number, and no model to back it up, just a lot of commonsense that says this is how people and economic societies behave when stressed and stretched to a near breaking point.

  • Kirk Shinkle

    Kirk Shinkle is a senior editor for U.S. News Money and manages the Best Funds portal. Follow him on Twitter @KirkS or email him at kshinkle@usnews.com.

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