Wall Street wrapped up another so-so year Friday, and it seems fair to say that most of our readers were disappointed. Again.
Up until the final session of the year, it appeared as though the benchmark Dow Jones industrial average was going to end 2005 in positive territory, but a fourth-quarter rally faded badly and traders took profits in the final hours.
The results came as an unwelcome surprise to most on Wall Street as well as to our readers, at least according to the results of our unscientific survey.
When we asked readers a year ago where they thought the Dow Jones industrial average would end 2005, a clear majority of respondents said 11,100 or above. With the Dow closing 2004 at about 10,800 — and the economy at last beginning to add jobs — it did not seem too much of a stretch to expect the market's best-known index to post a gain of 2 percent or better for the year.
Instead the Dow, weighed down by problem children like General Motors and Pfizer, is ending the year pretty much where it began, having fallen back once again after approaching the 11,000 mark, which is beginning to seem like an insurmountable psychological barrier. The Dow's 0.6 percent loss for the year ended a brief two-year winning streak for the 30-share index.
Readers were similarly overoptimistic about the fate of the Nasdaq composite index, which mirrors the fate of stocks in the technology sector. Half the 20,000 people who responded to our not-scientifically-valid survey thought the Nasdaq would score a gain of at least 5 percent to vault it above 2,275, and 9 percent were optimistic enough to hope for a close above 2,400, which would have represented a 10 percent gain.
Alas, those days of double-digit stock market gains appear to be behind us for now, and the Nasdaq is closing the year with a slim gain of about 1.4 percent.
At least the S&P 500, which is actually the index that matters most to many mutual-fund owners and managers, is closing the year with an inflation-beating gain of 3 percent. That is in line with what a 40 percent plurality of our survey-takers expected, although the S&P is finishing at the very low end of the range we offered.
For a look at an area where our readers were really fooled — along with most professional forecasters — consider what our survey said about interest rates.
A year ago most readers thought the overnight bank lending rate controlled by the Federal Reserve, known as the federal funds rate, would end between 2.75 and 3.5 percent, compared with the 2.25 percent level where it ended 2004. Instead the Fed's policy-making panel raised the rate a quarter-percentage point at all eight meetings in 2005, leaving the rate at 4.25 percent.
Meanwhile the benchmark 30-year mortgage rates ended the year just a bit higher than where it began at 6.22 percent, according to Freddie Mac. Our survey indicated that readers — like forecasters — expected the rate to go higher.
On one issue at least our readers were dead accurate: Asked whether Congress would pass significant Social Security reform in 2005, an overwhelming 78 percent majority said no. The issue was red-hot after last year's election, when President Bush moved it to the top of his domestic agenda. But by the halfway mark of the 109th Congress, the issue had been pushed not just to a back burner, but perhaps to a warming oven in an auxiliary kitchen deep underneath the Capitol.