2010 was a rebuilding year as our economy experienced a jobless recovery from the 2007-2009 recession. Aside from slow growth, there were several events that shaped the economy and affected the markets this year. In February, President Obama unveiled a $3.8 trillion budget for 2011. The budget included a $1.6 trillion deficit in the next fiscal year and steadily declines over the next 10 years. However, Congress still has not passed many parts of the budget because many Democrats were afraid to make any moves prior to November’s election.
Higher-than-normal unemployment rates created a lag in the recovery throughout the year. However, Republicans and Democrats alike voted and approved, in March, a jobs bill that included incentives for small businesses to hire new employees who have been out of work for at least 60 days. The bill also included measures for improving federal highways and rebuilding bridges and roads.
Later that month, the House of Representatives approved the Health Patient Protection and Affordable Care Act of 2010. The overhaul of the health-care system, signed by President Obama on March 23rd, allows children to stay on their parents’ health insurance plans until the age of 26, prevents insurance companies from denying coverage because a patient has pre-existing conditions, subsidizes private insurance for low- and middle-income Americans and requires Americans to have some sort of health insurance among other provisions.
The May 6th Flash Crash wreaked havoc on the market for a few hours. In a matter of seven minutes, the U.S. stock markets went completely haywire, sinking the Dow by 700 points before recovering. The hiccup wiped out the market value of companies like Procter & Gamble (NYSE: PG) and Abbot Laboratories (NYSE: ABT) before rebounding to prices just below their opening prices before market close. The government has been investigating the cause of the Flash Crash for nearly seven months and is no closer to an answer. Many investors suspect the fault lies in the broad practice of computer-driven rapid trading that dominates Wall Street. Investors who placed stop-limits, or orders that were to be executed when a stock reaches a certain price, wiped out year’s worth of gains. Others are still dealing with tax consequences of the Flash Crash.
The global markets were dragged down in May because Greece was on the verge of bankruptcy. The European Central Bank promised a creation of $955 billion rescue fund for eurozone countries with debt problems. However, economists remained worried that bailouts would lead to reckless spending. Many European countries launched austerity measures, which could be the reason we saw a dip in the second quarter.
While BP’s Deepwater Horizon oil rig explosion occurred in April, it was in June when the oil was still flowing into the ocean at an average of 42,000 gallons per hour that energy stocks took a beating. On June 8th, tests confirmed that oil from the spill was spreading throughout the ocean farther than experts initially expected. Many of the costal communities from Florida to Louisiana suffered a sharp decline in income, giving many fears of a double-dip recession. By July, after 86 days of gushing oil into the Gulf of Mexico, BP was able to cap its leaking well. While this resolution did not necessarily drive the market, July set the stage for a solid third quarter.
Congress approved the landmark financial regulation bill in July. The bill increased the number of companies that will be regulated by government oversight, and created a panel to watch for risks in the financial system and a consumer protection agency. We were pleased to see most regulatory authority stay under the Federal Reserve.
Home sales were dismal most of 2010, hitting their lowest level in 10 years in August. The seasonally adjusted annual sales rate was 3.83 million, 25.5% lower than July 2009. The government tried to stimulate the housing market, extending the $8,000 tax break for first-time homebuyers through June and providing an opportunity for long-time homeowners to upgrade. Once the faucet of incentives stopped, the housing market essentially dried up. The Atlanta metro area struggled with depressed values and below average sales for the rest of the year.
The Republican Party swept the November elections, regaining control of the House of Representatives, by winning more than 60 seats. More importantly, the GOP now controls more state legislature seats and chambers than it has since the 1920s. This should put them in a prime position for reapportionment from the 2010 census results. All but two states that were carried by Obama in the 2008 election lost congressional seats, while all but two that were carried by McCain gained seats.
In December, we finally saw some real action by our government when the Senate and House hammered out a tax cut compromise. President Obama promised during his campaign he would repeal the Bush-era tax rates. However, he decided to compromise with Republicans in a two-year extension that also included $57 billion for extended unemployment insurance. The markets responded in kind to the legislation, gaining nearly 6% in December.
The year saw home loan interest rates mostly in the low 4% range, with a historic low reached during the summer months. Fourth quarter rates ended on the higher part of the curve at 4.75%. Despite the dip mid-year, home loan interest rates are almost at the same level they were a year ago. For homebuyers, we remain in a great interest rate environment.
Bond interest rates also hit historic lows in the fall, leading to the Federal Reserve’s second quantitative easing program in November, intending to drive down the longer end of the market. The short end of the market has come up. At the beginning of the year, three-month treasuries were yielding 0.05%. Now, a three-month treasury yields 0.12%. Throughout the year, we watched two-, five- and 10-year treasuries fall most of the year. In November rates jumped nearly 1% to end the year at about the same yields as last December.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
