Bull Markets Were in Abundance in ’04
The best investment lesson of 2004 may be this: A bull market is wherever you find it.
In the stock market, the blue-chip Dow Jones industrial average eked out a 3.2% gain for the year. But investors didn’t have to look far to find much better returns.
The Dow transportation stock index zoomed 26.3% as investors snapped up trucking and railroad issues -- beneficiaries of the growing economy.
Energy stocks had a terrific year as oil and gas prices did a levitation act. The average New York Stock Exchange-listed energy issue rose 25.5%.
Small bank stocks, steel shares, Internet-related issues and HMOs, among other sectors, also posted double-digit gains.
Some analysts have bemoaned the fall from grace of drug stocks and other classic “growth” issues.
But focusing on the year’s losers distracts from what were many winners, said Tim Hayes, equity strategist at Ned Davis Research in Venice, Fla.
“The breadth of the market has been very good,” he said. “I think that’s really the way you need to look at it.”
A continuing surprise to many Wall Street pros has been the stellar performance of smaller stocks. The Russell 2,000 index of small-company shares rose 17% in 2004. That marked the fifth consecutive year that the index performed better than the blue-chip Standard & Poor’s 500.
John Bollinger, head of Bollinger Capital Management in Manhattan Beach, expects smaller stocks to continue to beat blue chips because, he said, smaller companies in general have better growth opportunities than many bigger companies.
“I think the bet remains with small- and mid-cap stocks,” he said.
Investors’ sustained interest in smaller companies reminds Doug Sandler, equity strategist at Wachovia Securities in Richmond, Va., of the 1970s stock market.
The latter part of that decade was a miserable one for many bigger companies, as inflation and interest rates rose. “But a lot of good things happened below the surface in that market” with smaller stocks, he noted.
In the same vein, Sandler believes that investors would be wise to bet on decent gains in many foreign markets in 2005, even without a further kick from a falling dollar.
But some market pros are holding out hope that big-name U.S. stocks will take back the lead in market performance this year.
A shift to those stocks “did not pay off in 2004; we think it will in 2005,” said Tobias Levkovich, equity strategist at Citigroup Global Markets in New York.
If investors get pickier after a two-year market rebound, they ought to be looking for relatively low stock price-to-earnings ratios, good dividend yields and strong balance sheets, Levkovich said. Many big-name stocks have all of those qualities, he said.
