This Economy: By one measure, a miserable decade

The last 10 years have been abysmal for U.S. stock-market performance, with large-company stocks posting their worst returns since the 1930s.

The Standard & Poor's 500-stock index is off 23 percent from its level at the end of 1999, when investors were still exuberant from nearly two decades of roaring gains capped by the dot-com bubble.

That S&P 500 loss is the first in a decade since the Great Depression era, when a similar broad measure of stock prices developed by Yale University finance professor Robert Shiller lost 42 percent of its value.

It shook the faith of the millions who in the 1980s and 1990s came to believe in the stock market as the best place to put their money, only to find in the 2000s that stocks were the worst place to have money.

David Bianco, chief U.S. equity strategist for Bank of America Merrill Lynch, attributed the 2000s slump to "too much optimism at the onset of the decade," which drove stock prices to unsustainable highs.

Hank Smith, chief investment officer for equities at the Haverford Trust Co. in Radnor, believes that stocks are coming back into favor because there has never been a 20-year period of negative returns.

His argument is that companies did not stand still during the 2000s, and most industries are better off than they were in 1999. "It has been a lost decade in terms of equity returns," he said, "but it has not been a lost decade in terms of fundamentals."

Many blue-chip stocks have posted gains in earnings and dividends that have not been matched by their stock prices, in part because those fundamentals had to catch up to the high valuations stocks had at the beginning of the decade.

For example, Smith said, the stock of Wal-Mart Stores Inc. is down 23 percent since 1999, even though its earnings are up 248 percent and its annual dividend is more than five times bigger than it was in 1999.

Driving the decline in the S&P 500 was the performance of large companies, such as General Electric Co. and Microsoft Corp., that have more influence on its movements. An analysis of individual stock performance provides a different picture.

Two-thirds of the 428 stocks in the S&P 500 last week that were also in the index at the end of 1999 gained value over the decade. The median annual price gain - meaning half did better and half did worse - was 4.35 percent.

Local stocks did not do so well. Only 46 percent of the Philadelphia-area stocks in the Inquirer/Bloomberg index for the last 10 years were higher last week than in December 1999, and the median stock was flat.

Among the local stocks that did well are industrials that were out of fashion during the dot-com era, including diversified manufacturer Ametek Inc. in Paoli, gases distributor Airgas Inc. in Radnor, and Philadelphia chemical-maker FMC Corp.

Companies are ranked

by average annual change in stock price since

Dec. 31, 1999.

Best Performers

Penn Nat'l. Gaming +28%

Health Care Services +26

Urban Outfitters +25

K-Tron Int'l. +22

AmerisourceBergen +22

Worst Performers

Internet Capital -46%

Advanta -44

USA Technologies -38

PhotoMedex -36

WorldGate Comm. -34

SOURCE: Bloomberg NewsEndText