subject: Two Year Anniversary Of The Bull Market Peak [print this page] In just the last two years, weve seen the failure of Lehman Brothers, the massive federal bailouts of Citigroup, AIG, Fannie Mae, Freddie Mac, and other too big to fail financial institutions. Merrill Lynch and Countrywide Credit were both bought by Bank of America, and the federal government stepped in to prevent the collapse of the auto industry. The recent years have been anything but normal. Fear and panic gripped Americans who were told almost nightly on the evening news that the next Great Depression had begun. Banks were failing all around us, and the federal government passed the largest ever fiscal stimulus plan. The U.S. economy experienced its longest recession since the Great Depression, and unemployment hit its highest level since 1983. During the bear market from 10/9/07 to 3/9/09, the S&P 500 lost 55.25% of its value, while major international markets lost even more.
The recovery weve seen over the past seven months has been remarkable! The surge in the S&P 500 off of the March 9th lows has been the strongest on record. Since the bear market low of March 9th, the S&P 500 is up over 60%. To get back to October 2007 levels though, we still need an additional 39%+. Will we make it back? That is the proverbial million dollar question.
Recent economic data has been a little mixed, but the economy appears to be on track to expand at about a 3% pace in the second half of 2009. Although economic indicators are no longer providing consistent upside surprises like they did throughout the summer, on balance the news is still improving. According to Goldman Sachs, there are three main areas of improvement in the data. First, industrial activity continues to accelerate by most measures. Second, retail sales have perked up a bit. Third, evidence of a bottom in housing activity continues to accumulate. The main area of concern remains the labor market which continues to shed jobs although employment rates are usually the last thing to recover from a recession.
So what lessons have investors learned during this tumultuous time period? Some have learned the hard way that, at times, even the traditional rules of diversification and buy and hold dont do enough to regulate risk. More often while still not a guarantee an investment philosophy that incorporates a focus on meaningful diversification, risk management, opportunistic asset allocation, and downside protection will serve investors better. As a dedicated investment professional, I am committed to using just such strategies to protect and grow the assets of my clients. If you have any questions about how I can help you with your portfolio, please call my office.
