After a very dreary quarter, markets managed to recover substantially in 2009, for an impressive 26.5% return. The year started out very grim, with the S&P dropping 10.9%, on top of the 37% it lost the previous year. Overall, the index saw a peak-to-trough decline of 55.2% on a total return basis. From that trough on March 9, the S&P gained 67.8% as of December 31.

Treasuries dipped to levels some may have thought impossible, and certainly almost all saw as absurd.  Short-term Treasury yields dipped below zero for a brief time, actually offering negative returns.  Such was the fear at the bottom— people would accept a negative return just for the perceived safety of a treasury.

As the economy recovers, one of the most closely followed indicators will be an improving unemployment rate. We look towards weekly initial claims to gauge the health of employment. Now, we look for total claims to continue to fall— for those without a job, it is the only economic statistic that really matters.

For 2010, we expect equities to appreciate by 10-18%. Bonds, on the other hand, should provide negative returns for the year.

For more, look for the forthcoming Hardesty Horizons newsletter for 4Q 2009.