4th Quarter

Another Good Year

Despite a significant summer correction and choppy market leadership, 2006 turned out to be a very profitable year. 

 

After three years of being overshadowed by strong international performance, U.S. markets resurged in the second half of 2006.  Total return of the S&P 500 in 2006 was 15.7%, the Dow 18.9%, and the Nasdaq 9.5% for 2006.  Much of last year’s gains came in the fourth quarter when the S&P gained 6.6%, the Dow 7.3%, and the Nasdaq, 6.9%. 

 

The average U.S. diversified stock fund returned 12% in 2006, double the gains of 2005.  But again, for the fourth-straight year, international funds were the place to be.  International stock funds gained 24% on average, double the domestic fund average return. 

 

The small-cap Russell 2000 Index gained 18% in 2006, and continued to lead, but the performance gap narrowed.  After six years of outperformance by small-company funds, large-caps finally came back into vogue, but only certain types.  Large-cap value funds beat their smaller counterparts, but large growth and core funds still lagged.   Overall, value investment styles outperformed growth in all size categories in 2006, as they have since 2000, but this too was inconsistent. 

 

Mutual fund investing involves risk. Principal loss is possible.  Growth stocks typically are more volatile than value stocks; however, value stocks have a lower expected growth rate in earnings and sales.