Bartlett Commentaries
Market Commentary, 04 / 2008
The financial markets have improved since our interim letter on March 17. Since then, the stock market is up 5-6%, Treasury bond yields have risen somewhat, and the dollar has advanced nominally against the euro. The "credit crunch" isn’t over, to be sure, but market conditions have moderated.
Despite the improved tone in the markets, the first quarter was one of the most difficult in recent memory, and undoubtedly among the most tumultuous. US stock indexes fell 8-9% and overseas equity markets fared even worse. The bond market was comparatively resilient. US Treasury bonds posted the best returns, their prices buoyed by a flight to safety. Other sectors of the bond market delivered more subdued performance amid very high volatility, something evident even in the municipal bond market which is usually comparatively placid.
Much has been written about the cause of the recent turmoil: the anticipated economic fallout from declining real estate prices, which we addressed in our last report. We believe a recession is now underway in the American economy, and this is of worldwide significance inasmuch as foreign economies depend on exports to the United States. This explains why many foreign stock markets posted double-digit declines in the latest quarter.
We would like to reiterate certain perspectives that we have lately mentioned:
- Recessions are by nature temporary. They usually last six to nine months, always followed by recovery. The most recent severe recession, in 1982, was brought on by conditions not evident today: sky-high interest rates amid double-digit inflation.
- The stock market is a leading indicator. It began weakening last summer, well before clear evidence of economic slowing. Similarly, it will improve well before economic recovery is underway. The headlines are grim, but emotions usually reach their lowest point at about the time the market is beginning to turn.
- Your portfolio is composed of high-quality, diversified investments. Most of your stocks represent industry leaders with sustainable competitive advantages. Many will likely gain market share because difficult economic conditions will cause retrenchment by weaker competitors.
- Volatility creates opportunity. Extreme market conditions create opportunities for value-minded investors focused on long-term fundamentals rather than frantic headlines. Although we are comfortable with your current holdings, we are always on the alert for uncommon values that are occasionally the product of emotional markets.
For more information on this topic, please contact us. At Bartlett & Co, we assist high net worth individuals and their families in defining & reaching their life goals.