In the beginning of 2009, the financial markets were fraught with uncertainty and pessimism. After reaching their lowest point in March 2009, the financial markets rebounded strongly. Stock markets ended 2009 with some of the strongest performances in recent years. After losing more than 37 percent in 2008, the S&P 500 was up 26.46 percent for the year (2009). That said, this resurgence was not enough to offset previous losses. The decade ended with an average annualized return of -0.95 percent, the worst showing for the S&P 500 in the last eight calendar decades. As investors regained their appetite for risk, the riskier investments within each asset class were the better performers. Internationally, stock markets, as measured by MSCI EAFE, were up 32.46 percent in 2009. Emerging markets were the best performing equity class this year, up 79.02 percent per the MSCI Emerging Markets Index. On the fixed income side, high yield corporate bonds surged with the Barclays Capital U.S. Corporate High Yield Index returning 58.21 percent for the year.

While not registering double-digit gains, as they did during the second and third quarters, stock benchmarks posted positive returns across the board during the final quarter of 2009. The Dow Jones Industrial Average posted an 8.1 percent return, while the S&P 500 Index, a broader based proxy for large cap stocks, gained 6.04 percent. In a reversal from last quarter, large cap stocks modestly outperformed mid cap and small cap companies, and growth stocks outperformed value stocks across the capitalization spectrum. The Russell 2000 Index, a broad measure of small-cap stock performance, rose 3.87 percent. In the large cap Russell 1000 Index, the growth component rose 7.94 percent, outperforming value, up 4.21 percent. Similarly, small cap growth stocks outperformed. The Russell 2000 Growth Index and the Russell 2000 Value Index, which track the growth and value segments of small cap stocks, returned 4.14 percent and 3.63 percent, respectively.

For Fourth Quarter 2009, the MSCI EAFE Index, a measure of foreign stock performance in developed markets, returned 2.22 percent to U.S. investors. Emerging markets continued on track as the year’s strongest performers, and gained 8.58 percent per MSCI Emerging Markets Index.

In the fixed income markets, investors continued to leave the “safe havens” of Treasuries and T-bills. This was reflected in the returns of the three-month T-bill, returning 0.03 percent for the quarter, whereas high yield bonds returned 6.2 percent. Overall, the Barclays Capital U.S. Aggregate Index rose 0.20 percent.

While it has been a banner year for stocks, some believe the biggest gains are behind us. The biggest worry for investors now is whether the rise in stocks reflects an overly optimistic expectation for the speed and strength of the economic recovery. Early in the rally, the market was driven by the realization that the financial system and economy had been spared from a total meltdown. For the rally to endure, the economy must avoid slipping back into a recession—the so-called “double dip” scenario. Companies must deliver earnings based on increased sales rather the aggressive cost cutting. Storm clouds remain on the economic horizon. As we enter 2010, continued high unemployment and residential real estate troubles, rising defaults in the commercial real estate markets, and potential inflation arising from the huge increase in government spending are some of the hurdles that confront us. Also of concern is how the market will react as the federal government unwinds or reverses some of the unprecedented fiscal and monetary stimulus plans it enacted in 2009.