Back to the Future: Will 2010 Look Like 2004?

While some forecasters are reaching back to the 1930s to find comparisons to the environment the markets are likely to encounter in 2010, we find a more recent comparison to be compelling. We believe that 2004 could be a useful guide to what may happen in 2010.

The idea that 2010 could be similar to 2004 in many ways may not be as far fetched as it may seem. After all, 2009 looked a lot like 2003. Consider that in both 2003 and 2009:

1. The S&P 500 index started the year at about the 900 level and closed in on 1100 as the year wore on.
2. The stock market made its low in March in the aftermath of a recession brought on by a bursting bubble in the financial markets.
3. Key economic barometers like the Institute for Supply Managements Purchasing Mangers Index (ISM) rose above 50 in the second half of the year signaling the return of expansion in the manufacturing sector.
4. The dollar fell and commodity prices rose.

Not only did the charts look similar, the years even sounded the same: the best selling album in 2009 is actually a compilation from 2003, Michael Jackson’s Number Ones.

Just as 2009 echoed 2003, 2010 is likely to be similar to 2004 in a number of areas, including: earnings growth for S&P 500 companies, the actions by the Federal Reserve, the outcome of the congressional elections, and the performance of the stock and bond markets.