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Hooray For Stocks

Curious about how the U.S. stock market fared in 2007? I came across the following data in the Wall Street Journal earlier today:

Dow Jones Industrial Average- up 6.4%
DJ Wilshire 5000- up 3.9%
DJ World (excluding U.S.)- up 11.8%
Amex Composite- up 17.2%
Nasdaq Composite- up 9.8%
NYSE Composite- up 6.6%
S&P 500- up 3.5%
Russell 2000- down 2.7%
Value Line (Geometric)- down 3.8%

This is the actual order of the indexes as depicted in the Journal. I like how the DJIA is at the top of the heap and the S&P 500 is tucked away in the pile. Is the Journal somehow implying that we should use the DJIA’s 6.4% return as “the” benchmark? According to Investopedia:

The main drawback of the DJIA is that it only contains 30 companies. The S&P 500 improves on the DJIA in this respect by including 500 companies. It is increasingly seen as the benchmark of the U.S. stock market. In fact, the performance of most equity managers is pegged against the S&P 500.

From the data, the S&P 500 gained 3.5% in 2007. A 3.5% return is nothing to write home about. I suspect a few investment advisors will be glossing over this fact when meeting with prospective clients in 2008.

Putting last year’s stock market performance into perspective, Nouriel Roubini, a former Treasury Department director under the Clinton administration and head of Roubini Global Economics in New York, noted the following in his post “2007: Cash Outperformed the Stock Market” from yesterday:

In 2007 cash (in the form of holdings of short-term Treasuries or money market funds) outperformed the stock market in the US. The year ended with a bearish note as all major indices down on Monday.

The broad index of the US stock market, the S&P500, ended the year up a mediocre 3.5%: that is less than the inflation rate for the year (that was above 4%) and that is less than holding a money market fund or a basket of short-term US Treasuries.

Commodities, anyone?