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Stocks post double-digit gains in 2010, despite a wild ride

December 31, 2010 |  1:37 pm

The U.S. stock market in 2010 racked up a second straight year of double-digit returns, as the economic recovery rolled on and Wall Street bet there’s more to come.

But equity investors may rightly wonder if their gains this year -- the average stock mutual fund was up more than 17% -- were adequate compensation for the mental stress they endured. Europe’s debt crisis, the U.S. market’s May “flash crash” and a summer economic slowdown all made for a torturous ride in stocks.

And with the Federal Reserve’s renewed efforts to bolster the recovery by pumping more money into the financial system, the nagging fear is that share prices might not be up at all without continued help from Washington.

One sign of investors’ deep anxiety about the future: The price of gold soared for a 10th straight year, rising nearly 30% in 2010 to end Friday at $1,421.10 an ounce, a record before adjusting for inflation.

Even so, investors who stayed put in stocks for the last 12 months mostly came out ahead, thanks to a  powerful fourth-quarter rally that was underpinned by increasing signs of economic strength.

The Dow Jones industrial average ended Friday at 11,577.51, up fractionally for the day and up 11% for the year, after gaining 18.8% in 2009.

Many broader market indexes far outpaced the blue-chip Dow, as they did when the market rebounded in 2009 from the financial-system meltdown. The Standard & Poor’s 500 index, a common benchmark for retirement accounts, closed Friday at 1,257.64, off slightly for the day but up 12.8% for the year. Including dividends, the S&P's gain was about 15%.

The tech-dominated Nasdaq composite index rose 16.9% for the year.

Small-company stocks again were standouts this year, with the Russell 2,000 index surging 25.3%.

Helped by the performance of smaller stocks, the average domestic stock mutual fund was up 17.5% for the year through Thursday, according to Reuters/Lipper data.

The average foreign-stock fund gained 13.3% for the year.

-- Tom Petruno