Large and mega cap stocks were the clear performance winners in September, as they were for the quarter as a whole. Small and mid-cap stocks lagged in both periods. In our opinion, this trend is likely to persist for the remainder of this year and into 2007. Large and mega caps have been the superior values for some time, in our judgment. Now that they appear to have price momentum on their side, they may be hard to beat.
We began 2006 believing that the US equity market could post low double digit returns for the year. Midway through the year that didn’t look like a very good bet, but following a quarter in which the Dow Industrials and S&P 500 Index were both up more than 5%, it’s starting to look better. In fact, the S&P 500 needs only a total return of 1.5% in the fourth quarter to get to double-digits for the year, and the Dow Industrials and S&P 100 Index only have to hold their existing gains. If history is any guide, that shouldn’t be a big problem. Over the last 20 years, the fourth quarter has been the strongest one for the S&P 500 Index, with an average total return of 5.06%, and only three down quarters in 20. More recent performance has been even better. Over the last five years, the S&P 500 has returned an average of 8.53% in the fourth quarter, and an average of 8.22% over the last 10X.
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We began 2006 believing that the US equity market could post low double digit returns for the year. Midway through the year that didn’t look like a very good bet, but following a quarter in which the Dow Industrials and S&P 500 Index were both up more than 5%, it’s starting to look better. In fact, the S&P 500 needs only a total return of 1.5% in the fourth quarter to get to double-digits for the year, and the Dow Industrials and S&P 100 Index only have to hold their existing gains. If history is any guide, that shouldn’t be a big problem. Over the last 20 years, the fourth quarter has been the strongest one for the S&P 500 Index, with an average total return of 5.06%, and only three down quarters in 20. More recent performance has been even better. Over the last five years, the S&P 500 has returned an average of 8.53% in the fourth quarter, and an average of 8.22% over the last 10X.
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