With all the strife in Iraq, mutual fund scandals and political wrangling in Washington, it's easy to forget that some truly good things have happened this year.
Indeed, 2003 has given investors plenty of reasons to be grateful, and with the Thanksgiving holiday upon us, there's no better time to sit back and reflect on what's gone right this year.
1. Financial Punditry
At the end of 2002, all but two major Wall Street firms were calling for sizable stock market gains in the year ahead. Morgan Stanley's Steve Galbraith, for example, predicted that the
would reach between 1000 and 1050 by the end of 2003. The S&P ended last year at 880.
Many investors (and journalists) scoffed at this bullishness and accused analysts of learning nothing from the three-year bear market. But the skeptics, including
, were wrong.
Of course, when you're permanently optimistic, as most analysts are, you're going to make a good call eventually. But at the end of the day, it doesn't matter whether these analysts were right through sheer luck or good insight because stocks rose sharply. The S&P 500 has climbed almost 20% for the year to 1053 while the Nasdaq has surged 46% to 1940.
2. The U.S. Economy
After a couple of years of sluggish growth, the U.S. economy bounced back this year. In the third quarter, gross domestic product jumped 8.2%, thanks to a big rise in business spending. The pace of growth is expected to slow going forward, but analysts have been pleased that the recovery seems to be broadening out beyond the consumer.
Although some economists worry that the unemployment rate is still high, recent data have shown some improvement on this front, and consumer confidence, as measured by the UBS Index of Investor Optimism, recently reached its highest level since March 2002.
All this good news has started to filter through to companies' bottom lines. The Commerce Department reported that after-tax corporate profits rose by 13.6% in the third quarter.
3. Interest Rates
cut interest rates again this year and recently vowed to keep them low for a "considerable period." While some analysts have expressed concern about this policy in light of faster economic growth and some signs of inflation, it has come as great news to homeowners and many consumers.
With mortgage rates at historic lows, home sales have soared, sending prices sharply higher. Mortgage refinancing and cheap home equity loans have put more cash into consumers' pockets this year, allowing them to spend money on things like cars and home appliances.
4. China and Japan
Speaking of low interest rates, it's worth taking a moment to thank China and Japan. China has recently become a convenient whipping boy for politicians, who argue that it is exporting deflation and bringing the U.S. textile industry close to extinction. But cheap imports from China mean consumers here get a better deal. More important, China and Japan have been using the profits from their exports to buy U.S. Treasuries, which has helped keep bond yields low.
Although recent data from the Treasury Department showed a pullback in foreign investment in September, China and Japan have been huge buyers of U.S. stocks and bonds throughout the year. Both countries have accumulated dollars to try to stem the appreciation of their own currencies and protect their exports. These dollars have then been recycled back into U.S. markets.
5. Eliot Spitzer
Some people love New York Attorney General Eliot Spitzer because they believe he is the only person to stand up to big business. Others think he is motivated by personal ambition and isn't really interested in changing Wall Street attitudes. But however you feel about the man, it's hard to deny that Spitzer has brought to light some significant abuses that otherwise might never have been revealed to the public.
Back in April, 10 Wall Street investment banks agreed to pay $1.4 billion to settle charges that they had misled investors with biased research in an effort to win investment banking business. Now Spitzer is taking on the mutual fund industry. Since he reached a $40 million settlement with hedge fund manager Canary Capital Partners -- which allegedly engaged in illegal trading of mutual fund shares -- a host of firms have been hit with subpoenas and more charges are expected.
To be sure, there are plenty of reasons to worry about the market going forward. Geopolitical worries, huge government deficits and a falling dollar don't necessarily bode well for the future. But Thanksgiving is a time to appreciate all of the good news bestowed upon us this year. Enjoy the moment.