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Morningstar Market Commentary: Fourth Quarter 2006

Second-half rally leads markets to stellar gains in 2006.

Sanjay Arya, 01/29/2007

The markets posted stellar gains in 2006. Falling energy costs, diminishing concerns about interest rates and inflation, and optimism for corporate earnings helped rally the markets in the second half of the year. Overall, the Morningstar US Market Index returned 15.7% in 2006.

In our special year-end review, Morningstar Fund Analyst Arijit Dutta provides insight into the market's performance.

A recap of some of the key trends:

  • Small-caps continue to flourish. Large- and mid-cap stocks remained competitive, allowing them to move within striking distance of small caps for the year.
  • Value beat growth to extend multiyear lead. Notwithstanding a late-year rally for growth stocks, value stocks beat their growth and core peers by a wide margin.
  • Passive benchmarks proved tough to beat. As a group, actively managed funds lagged their respective style indexes in all but two of the Morningstar style categories.

Sanjay Arya is director of Morningstar Indexes.

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