Capital Markets Charts 2003 Series

Transcription

1 Capital Markets Charts 2003 Series (Markets and Tragedies) IFS-A76899 Charts 1-7 Reminder: You must include the Glossary of Indices and disclosure pages with all charts you select to use, either individually or as a group. Information as of December 31, 2002 unless otherwise noted To use a slide(s) within your presentation, go to the desired slide(s) and follow these steps: Click Edit, Select All and Copy. Go to your presentation and paste the contents to a blank slide. Repeat for each slide you wish to use including the Glossary of Indices (required)

2 US Markets After WTC Attack /01 to 10/01 9/01 to 11/01 9/01 to 12/01 S&P 500 U.S. Small Stk U.S. LT Corp U.S. LT Gvt U.S. 30 Day TBill Source: Ibbotson. Past performance is no guarantee of future Results. Stocks offer growth potential, but fluctuate more than other investments. The prices of small company stocks are generally more volatile than those of larger, more established companies. Government bonds and Treasury bills are guaranteed by the US Govt and, as with all bonds, if held to maturity, offer a fixed rate of return and fixed principal value. Investors Cannot directly invest in an index. See Chart Disclosures and Index Descriptions. IFS-A76899 Chart #1 This chart indicates how resilient US markets have historically been. From Sept 1, 2001, to Oct 30, 2001, equities had plummeted over 30% as a result of the terrorists attacks in early Sept. However, by the end of November, large cap stocks had fully recovered and were actually up 3.50%. By the end of December, small cap stocks were up over 18% for the previous four months. Past performance, of course, is no guarantee of future results. Nevertheless, this should help investors understand the importance of long-term investing.

3 67 Reasons Why People Did Not Invest in the Stock Market 1934 Depression 1935 Spanish Civil War 1936 Economy Still Struggling 1937 Recession 1938 War Clouds Gather 1939 War in Europe 1940 France Falls 1941 Pearl Harbor 1942 Wartime Price Controls 1943 Industry Mobilizes 1944 Consumer Goods Shortages 1945 Post-war Recession Predicted 1946 Dow Tops Market Too High 1947 Cold War Begins 1948 Berlin Blockade 1949 Russia Explodes A-Bomb 1950 Korean War 1951 Excess Profits Tax 1952 U.S. Seizes Steel Mills 1953 Russia Explodes H-Bomb 1954 Dow Tops Market Too High 1955 Eisenhower Illness 1956 Suez Crisis 1957 Russia Launches Sputnik 1958 Recession 1959 Castro Seizes Power in Cuba 1960 Russia Downs U-2 Plane 1961 Berlin Wall Erected 1962 Cuban Missile Crisis 1963 Kennedy Assassinated 1964 Gulf of Tonkin 1965 Civil Rights Marches 1966 Vietnam War Escalates 1967 Newark Race Riots 1968 USS Pueblo Seized 1969 Money Tightens-Markets Fall 1970 Cambodia Invaded-Vietnam War Spreads 1971 Wage Price Freeze 1972 Largest U.S. Trade Deficit Ever 1973 Energy Crisis - Gas Lines 1974 Steepest Market Drop in Four Decades 1975 Clouded Economic Prospects 1976 Economic Recovery Slows 1977 Market Slumps 1978 Interest Rates Rise 1979 Oil Prices Skyrocket & Hostage Crisis 1980 Interest Rates At All-Time High 1981 Steep Recession Begins 1982 Worst Recession in 40 Years 1983 Market Hits New Highs 1984 Record Federal Deficits 1985 Economic Growth Slows 1986 Dow Nears Record-Setting Market Decline 1989 October "Mini-Crash & Berlin Wall 1990 Persian Gulf Crisis 1992 Global Recession 1993 Health Care Reform 1994 Fed Raises Interest Rates Six Times 1995 Dow Tops Dow Tops Hong Kong reverts to China 1998 Asian Flu 1999 Y2K Scare 2000 Technology Bubble Bursts 2001 Attack on WTC Source: 1838 Investment Advisors. See Chart Disclosures and Index Descriptions. IFS-A76899 Chart #2 And One Good Reason Why You Should. $10,000 invested in the Stock Market (Standard & Poor s 500 Index) in January of 1934 would have been worth over $20,669,704 in December of Year after year, people think of reasons why they should not invest in the market. And year after year, the market outperforms virtually all other investment opportunities. Keep in mind, stocks offer long term growth potential but may fluctuate more and provide less current income than other investments. Investors cannot directly invest in an index. Source: 1838 Investment Advisors.

4 The Market in Crisis Appreciation Dow Jones Industrial Average Berlin Blockade Korean War 1962 Stock Market Break October 1962 Cuban Missile Crisis November 1963 Kennedy Assas August 1964 Gulf of Tonkin Stock Market Break Stock Market Break Oil Crisis 1987 Crash 1990 Persian Gulf War Average Appreciation 1 year Later -3.30% 28.80% 32.30% 33.80% 25.00% 7.20% 43.60% 42.20% 27.90% 22.90% 23.60% 25.80% 2 years Later 13.20% 39.30% 55.10% 57.30% 33.00% 3.10% 53.90% 66.50% 5.90% 54.30% 31.30% 37.50% Source: Contrarian Investment Strategies: The Next Generation by David Dreman, 1998, Simon and Schuster Performance of the Dow Jones Industrial Average through 11 major post-war crises. Past performance is no Guarantee of future results. Investors cannot directly invest in an index. See Chart Disclosures and Index Descriptions. IFS A76899 Chart #3 This chart indicates how the Dow Jones Industrial Average has bounced back one and two years after 11 major US political or economic events. Since 1948, the DJIA has had an average appreciation of 25.80% one year after the event and a 37.50% average return two years after. Past performance, of course, is no guarantee of future results. Nevertheless, this helps investors understand the resiliency of the markets.

5 Value of the Dow Jones Industrial Average Market Performance In The Time Of Crisis: 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Pearl Harbor Bombing Jan-40 Jan-42 U.S. Gas Rationing Cuban Missile Crisis Pres. Eisenhower has Heart Attack Jan-44 Jan-46 Jan-48 Jan-50 Jan-52 Jan-54 Jan-56 Jan to 2000 Pres. Kennedy Nationwide Assassinated Steelworkers Strike Jan-60 Jan-62 Jan-64 Franklin National Bank is Insolvent Arab Oil Embargo Iran Hostage Scandal Pres. Reagan Shot Silver Crises Space Shuttle Explodes Jan-66 Jan-68 Jan-70 Jan-72 Jan-74 Jan-76 Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Oklahoma City Bombing Orange County, CA Financial Crisis World Trade Center Bombing Iraq Invades Kuwait Long-Term Capital Debacle The Asian Contagion Begins Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Source: Roxbury Capital Management. 9/01. Past performance is no guarantee of future Results. Investors cannot directly invest in an index. See Charts Disclosures and Index Descriptions. IFS A76899 Chart # 4 This chart plots major US and international political and economic events along a time line with the growth of the Dow Jones Industrial Average. Past performance, of course, is no guarantee of future results. Nevertheless, this can help investors understand how certain events have affected the markets, good or bad.

6 U.S. Market Recovery after Tragedy 90% 70% 50% Cumulative return of the S&P 500 after tragic events 81.4% After 1 month After 6 months After 1 year After 3 years 57.7% 56.6% 30% 10% 1.6% 20.3% 2.6% 11.4% 18.9% 20.9% 15.9% 26.9% 8.3% 6.1% 2.2% -10% -1.0% -4.9% -30% Dec 7, 1941 Pearl Harbor Nov 22, 1963 President Kennedy assassinated Aug 2, 1990 Iraq invades Kuwait Feb 26, 1993 World Trade Center bombed Source: Ibbotson Associates. Past performance is no guarantee of future results. Investors can not directly invest in an index. See Chart Disclosures and Index Descriptions. IFS A76899 Chart # 5 This chart takes a look at four major US events and how the S&P 500 reacted one month, 6 months, 1 year, and three years after the event took place. Past performance, of course, is no guarantee of future results. Nevertheless, it is a pretty compelling case for long-term investing. For the most part, as time passed, the cumulative return of the S&P continued to grow.

7 Global/Financial Crisis Events Dow Jones Declines and Subsequent Performance Reaction Dates Percentage D JIA Forw ard P erfo rm an ce Crisis Event Beginning Ending Gain/Loss 22 Days 63 Days 126 Days Fall of France 5/9/1940 6/22/ % -0.50% 8.4% 7.0% Pearl Harbor 12/6/ /10/ % 3.8% -2.9% -9.6% Trum an Upset/V ictory 11/02/ /10/ % 1.6% 3.5% 1.9% Korean War 6/23/1950 7/13/ % 9.1% 15.3% 19.2% Eisenhower Heart Attack 9/23/1955 9/26/ % 0.0% 6.6% 11.7% Sputnik 10/3/ /22/ % 5.5% 6.7% 7.2% Cuban Missile Crisis 8/23/ /23/ % 15.1% 21.3% 28.7% JFK Assassination 11/21/ /22/ % 7.2% 12.4% 15.1% US Bombs Cambodia 4/29/1970 5/26/ % 9.9% 20.3% 20.7% Kent State Shootings 5/4/1970 5/14/ % 0.4% 3.8% 13.5% Arab Oil Embargo 10/15/ /05/ % 9.3% 10.2% 7.2% Nixon Resigns 8/9/1974 8/29/ % -7.9% -5.7% 12.5% USSR in Afghanistan 12/24/1979 1/3/ % 6.7% -4.0% 6.8% Hunt Silver Crisis 2/13/1980 3/27/ % 6.7% 16.2% 25.8% Falkland Island War 4/01/1982 5/7/ % -8.5% -9.8% 20.8% US Invades Grenada 10/24/ /07/ % 3.9% -2.8% -3.2% US Bombs Libya 4/15/1986 4/21/ % -4.3% -4.1% -1.0% Financial Panic /2/ /19/ % 11.5% 11.4% 15.0% Invasion of Panama 1215/ /20/ % -2.7% 0.3% 8.0% Gulf War 12/24/1990 1/16/ % 17.0% 19.8% 18.7% Gorbachev Coup 8/16/1991 8/19/ % 4.4% 1.6% 11.3% ERM UK Currency Crisis 9/14/ /16/ % 0.6% 3.2% 9.2% World Trade Center Bombing 2/26/1993 2/27/ % 2.4% 5.1% 8.5% Russia/Mexico/Orange County 10/11/ /20/ % 2.7% 8.4% 20.7% Asian Market Crisis 10/7/ /27/ % 8.8% 10.5% 25.0% Russian Crisis 8/18/ /8/ % 15.1% 24.7% 33.7% Ned Davis Research Inc. Mean -8.1% 4.5% 6.9% 12.9% D ays = M arket D ays M edian -6.2% 4.2% 6.7% 12.1% Note: The average number of trading days = 22 in a month, 63 in three months and 126 trading days in six months. Source: TCW Investment Management. Past performance is no guarantee of future results. Investors cannot directly invest in an index. See Glossary of Indices for index descriptions. IFS A76899 Chart # 6 This chart takes a look at 26 world political and economic events and how the Dow Jones Industrial Average has responded to the event on a percentage basis, from the beginning to the end of the event. Three time periods are looked at after the event had ended (22,63,126), to gauge how the DJIA had performed. Past performance, of course, is no guarantee of future results. Nevertheless, on average, the market bounced back 4.5% after one month of trading days, 6.9% after three months of trading days, and 12.9% after six months.

8 The Emotional Cycle of the Market Source: Janus Distributors. Chart describes greatest potential risk and greatest potential opportunity. Past performance is no guarantee of future results. IFS A76899 Chart # 7 This chart takes a humorous look at the typical emotional thought process every investor experiences at some point in their investing life. When we first invest we are hopeful that we made the right decision. As the stock appreciates, we are thrilled and feel confident. As the investment begins to falter and the price retreats, we become nervous and alarmed and begin to doubt if we did the right thing. Then the investment may hit bottom. We begin to feel desolate and discouraged. However, it is at this point that we often miss the greatest buying opportunity.

9 Glossary of Indices The indices are presented to provide you with an understanding of their historic long-term performance, and are not presented to illustrate the performance of any security. Investors cannot directly purchase any index. Past performance is not a guarantee of future results. Individual investor results will vary. Small Stocks: For , the small company stock return series is the total return achieved by the Dimensional Fund Advisors (DFA) Small Company 9/10 Fund. This fund is a market value-weighted index of the ninth and tenth deciles of the New York Stock Exchange (NYSE), plus stocks listed on the American Stock Exchange (AMEX) and over the counter (OTC) with same or less capitalization as the upper bound of the NYSE ninth decile. The equities of smaller companies from are represented by the historical series developed by Professor Rolf W. Banz. This is composed of stocks making up the fifth quintile of the NYSE. For 1981, Dimensional Fund Advisors, Inc. updated the returns using Professor Banz s methods. Large Stocks: The large stock total return index is based upon the Standard and Poor s composite index. The S&P 500 is an unmanaged weighted index of 500 stocks providing a broad indicator of price movement. Long-Term Corporate Bonds: For , corporate bond total returns are represented by the Salomon Brothers Long-Term High Grade Corporate Bond Index. The index includes nearly all Aaa and Aa rated bonds. Over , the total returns were calculated by summing the capital appreciation returns and the income returns. For the period , Ibbotson and Sinquefeld backdated the Salomon Brothers Index, using Salomon Brothers monthly yield data with a methodology similar to that used by Salomon for Capital appreciation returns were calculated from yields assuming a 20-year maturity, a bond price equal to par, and a coupon equal to the beginning of the period yield. For the period , the Standard & Poor s monthly High Grade Corporate Composite Yield data were used, assuming a 4% coupon and a 20-year maturity. The conventional present value formula for bond price was used for the beginning and end of the month prices. Long-Term Government Bonds: The total returns on long-term government bonds from are constructed with data from the Wall Street Journal. Over , data are obtained from the Government s file at the Center for Research in Security Prices (CRSP), Graduate School of Business, University of Chicago. Each year, a one-year bond portfolio with a term of approximately 20 years and a reasonably current coupon and whose returns did not reflect potential tax benefits, impaired negotiability, or special redemption or call privileges, was used. Where callable bonds had to be used, the term of the bond was assumed to be a simple average of the maturity and first call dates minus the current date. The bond was held for the calendar year and returns were computed. continued - next page Rev. 03/03

10 Glossary of Indices (continued from previous page) T-Bills: For the U.S. Treasury Bill Index, data from the Wall Street Journal are used form ; the CRSP U.S. Government Bond File is the source until Each month, a one-bill portfolio containing the shortest-term bill having not less than one month to maturity is constructed. To measure holding period returns for the one-bill portfolio, the bill is priced as of the last trading day of the current month. International Stocks: The returns for International Stocks are based on the Morgan Stanley Capital International Europe, Australia, Far East Index (MSCI EAFE) for the period MSCI EAFE is a market value-weighted average of over 900 securities listed on stock exchanges in the developed countries in the regions listed above. The index includes reinvestment of gross dividends before deduction of withholding taxes. Inflation: The Consumer Price Index for all Urban Consumers (CPI-U), not seasonally adjusted, is used to measure inflation, which is the rate of change of consumer good prices. All of the security returns are measured from one month-end to the next month-end. CPI commodity returns are collected during the month. Thus, measured inflation rates lag the other series by about one-half month. Prior to January 1978, the CPI (as compared with CPI-U) was used. Both inflation measures are constructed by the U.S. Department of Labor, Bureau of Labor Statistics. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index (stock price times number of shares outstanding), with each stock's weight in the Index proportionate to its market value. The "500" is one of the most widely used benchmarks of U.S. equity performance. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. These 30 stocks represent about a fifth of the $8 trillion-plus market value of all U.S. stocks and about a fourth of the value of stocks listed on the New York Stock Exchange. Source: Ibbotson Associates, Chicago Rev. 03/03

11 Disclosures Government bonds and Treasury bills are guaranteed by the US Gov t and, if held to maturity, as with all bonds offer a fixed rate of return and principal. Stocks offer long term growth potential but may fluctuate more and provide less current income than other investments. Standard deviation represents the amount, over a period of time, that a portfolio s return deviates from the mean or average annual return that the portfolio has Experienced. The price of small company stocks generally are more volatile than those of large company stocks. Securities products & services are distributed by Prudential Investment Management Services LLC (PIMS), Three Gateway Center, 14 th Floor, Newark, NJ PIMS is a SIPC member and Prudential Financial Company. Prudential Financial is a service mark of The Prudential Insurance Company of America, Newark, NJ and its affiliates. Rev: 03/03