It may be true that all good things must come to an end. But at least in 2012, barring a big plunge in the last week of the year, the Dow Jones Industrials (^DJI 0.09%) have been able to keep a good thing going, as they're on their way to posting a fourth consecutive annual gain this year.
A look back at history
At first glance, a gain of about 8% for the Dow this year may not seem like all that much. Historically, gains in that range fall roughly in the middle of the pack, with four years in the past decade showing better returns.
But what does stand out about the Dow's performance this year is that has made an unusually long streak of gains. The bull markets of the 1980s and 1990s had two long runs of gains, but even they had a couple of years in which the market only managed to gain a couple of percentage points. Last year's 5.5% rise for the Dow is admittedly modest by comparison, but it still represented a nice gain for Dow investors.
Of course, history cuts both ways. On one hand, bull markets don't tend to last as long as this one has, and even when you consider a couple of quick market swoons in the late summer of 2011 and this past spring, we've gone a long time without seeing a correction that didn't immediately reverse itself and allow the market to pop right back upward. However, especially during the 1990s, many investors got burned by assuming that the bull market would end prematurely, and those who got out after tumbles in early 1994, late 1997, and late 1998 regretted the further gains they missed out on.
Cheap near all-time highs?
By another measure, though, the Dow seems to have plenty of room left to run. At its current levels, the Dow remains below its 2007 closing level of 13,265, yet total earnings for the Dow stocks add up to more than $900 per share -- well above the 2007 full-year Dow earnings of about $830. Moreover, with much of the 2007 figure arguably being inflated by unsustainable earnings from financial stocks, a fairer measure of P/E five years ago points to even higher valuations back then compared to earnings multiples prevailing right now.
Moreover, one area where the Dow has made substantial progress in recent years is in boosting dividends. The Dow currently has a yield of about 2.66%, and even with the index's gains over the past year, its dividend yield has risen, showing that dividend growth has outpaced stock price growth among the Dow's components. Although the yield isn't that much changed from pre-crisis levels, Dow dividends have recovered despite the lack of any significant payout from Bank of America (BAC +0.28%). The Dow's tech contingent has had the biggest impact on the average's dividends, as Intel (INTC +0.69%), Microsoft (MSFT 1.62%), and Cisco Systems (CSCO +0.76%) have all had massive payout increases to boost the Dow's overall dividend output.
Where will the Dow end up in 2013?
Looking to next year, the Dow's challenges remain much the same as they were this time last year. The U.S. economy hasn't demonstrated a lasting ability to get past the major issues that confront it, including government fiscal policy and high unemployment. Europe has taken steps to address immediate crises but still hasn't resolved the major underlying strife within the eurozone. And emerging markets like China, despite having taken steps to shore up their flagging growth through stimulus measures of their own, still haven't re-established the dominance they enjoyed throughout much of the 2000s.
One thing is certain: 2013 will bring its own set of surprises, both positive and negative. As an investor, the best you can expect is to be prepared for whatever comes your way and take advantage of opportunities whenever they present themselves.
