A Roller-Coaster Ride to a Strong Finish in 2006

by Wayne A. Thorp

After experiencing a lackluster start one year earlier, investors were no doubt pleased with the onset of 2006 as they rode the S&P 500 up to a quick 3.7% gain over the first six trading days of the new year.

However, reality poured cold water on the market rally toward the end of January in the name of earnings season. For the next few months, the market and investors were on a roller-coaster ride driven by corporate earnings; the deflating housing market; a weakening dollar; rising inflation, wages, and commodity prices; and Federal Reserve actions.

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Just as the market seemed to break out of its funk and various indexes—including the S&P 500—were climbing to five-year highs, the Federal Reserve stalled the ride by failing to quell Wall Street’s fears of continued rising interest rates. Between May 5, when the S&P 500 closed at its year-to-date high, and June 13, the S&P 500 dropped nearly 8%.

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