Bartlett Quarterly Review
January - March, 2010
Take that, bears! Investors who doubted that last year's rally would continue spent much of the quarter raising their eyebrows in disbelief. The domestic equities indexes celebrated the one-year anniversary of last year's March lows by roaring back from a downturn in late January and early February. Even the Dow, which lagged the others, hit a high not seen in 18 months. As often happens after an economic downturn, small caps continued to see the greatest rebounds. The Russell 2000 has now almost doubled from its March 9, 2009 low, followed closely by the Nasdaq's 89% rebound. By contrast, the broader S&P 500 is up 73% over the same period--a 55% retracement of the loss from its October 2007 market peak--while the Dow has gained 66% since last March.
Anxiety about European sovereign debt, particularly that of Greece, rattled bond markets, though eurozone leaders promised support. As a result, the dollar rally that began late last year rolled on, even though the Federal Reserve continued to promise low interest rates for "an extended period." By quarter's end, U.S. Treasury auctions showed signs of strain, with weak demand for short- and intermediate-term issues. However, investor demand seemed able to handle the ongoing flood of both corporate and Treasury debt.
Quarterly Economic Perspective
- Despite expectations that February blizzards might mean even worse unemployment figures, Bureau of Labor Statistics data showed unemployment dropped from 10% to 9.7% over the last three months and stayed there. March was the fifth straight month of either improvement or stabilization. However, the 162,000 jobs added to nonfarm payrolls in March included 48,000 temporary census workers.
- The hotly debated Patient Protection and Affordable Care Act (the health care bill) and revisions to it were signed into law, as was a second jobs stimulus package.
- Inflation remained relatively benign at the consumer level, but by March, wholesale inflation was edging up at an annual rate of 4.4%.
- The Federal Reserve Board made good on its promise to wind down some of the measures it adopted to combat the financial crisis. Its purchases of mortgage-backed bonds came to an end in March as scheduled. The Fed also raised the interest rate it charges banks for short-term emergency loans from 0.5% to 0.75%, though the Fed funds rate--the one that most affects consumers--remained the same.
- New home sales fell to their lowest levels since the Commerce Department began keeping records in 1963. February's blizzards also took their toll on housing starts. However, February retail sales were up almost 4% from a year ago. Not including a sharp drop in auto sales, the number was even stronger, and companies continued to replenish inventories.
- The Federal Reserve Board said that overall household net worth was up by 5.4% in the last quarter of 2009. However, total consumer debt saw its biggest annual decline on record, largely because of record defaults on mortgages, credit cards, and other debt.
- The spread between 2-year and 10-year Treasury debt widened from 2.71% at the beginning of the year to 2.82%. Bond funds continued to attract the bulk of new mutual fund inflows.
Economic Data/Currencies
The Markets
Investor's Almanac
History Lessons: The longest bull market on record lasted from October 1990 to July 1998. The longest previous bear? From September 1939 to April 1942. Bear in mind (no pun intended) that experts can differ in how they define specific bull and bear markets.*
Did You Know? When you consider the yield of an individual bond, it's important to know what type of yield you're talking about. A bond's coupon rate is the interest rate specified in the bond agreement. Its current yield may be different because that depends on whether you bought the bond at a premium or a discount to its face value.
DATA SOURCES: Economic: Based on data from U.S. Bureau of Labor Statistics (CPI/PPI inflation, unemployment); U.S. Dept. of Commerce (GDP, housing starts, retail sales). Performance: Calculated based on data as reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.kitco.com (spot gold, NY close); Oanda (currency exchange rates). The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely-traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Nasdaq Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.
*Based on data from the Stock Trader's Almanac 2010 on the Dow Jones Industrial Average from 9/24/1900-3/10/2008.
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