The S&P 500 was down 11.7% for the quarter.
After making new lows on March 6th, the Index rallied to post a positive final month of another bad quarter and was up 8.54%. As the market made new lows at the beginning of March, we received about a dozen client calls that were very fearful.
The message was consistent and reasonable: I understand that markets are in crisis. I understand I'm holding-up ok. My assets have reached a level that scares me. I cannot imagine how I will deal with an additional, significant drop.
The S&P rallied over 100 points from those intra-month lows and closed at 797, and investors feel calmer. They have hope of an ultimate market recovery and are reassured by evidence that markets can actually go up. The monthly rise notwithstanding, the index was down for the sixth consecutive quarter.
But, investors feel better. Should they feel better?
We think that investors should feel somewhat better but not much. The stock market is a pricing mechanism. The market's March increase represents a measure of improving sentiment and corporate fundamentals, among other things. Has the world economy really changed that much in a month? Has the US economy changed that much? Are fundamentals genuinely improving? There is talk that the economy has bottomed and is turning. Several experts are calling the March 6th low a market bottom. We respond to all of these suggestions with a definite maybe.
We are confident that the overwhelming pessimism will pass and that the economy and that markets will recover. Trends always last longer than most expect, and no one has any idea when this one will be over. Certainly, as this Bear Market ends, there will be many calling for another downturn that will never come. A year or so after this market turns bullish, the incredulous chorus will wail as to how anyone could have missed the "obvious" bottom. While the March rally feels better, we are still in no-man's land.
Our advice continues to be defensive. Ample evidence of an ongoing economic contraction bolsters our position, but as always, our fundamental discipline determines our investments and investment changes. Monies needed for near-term expenses should not be held in long-term, volatile investments. There are more down days ahead, but sixteen months of this downturn are behind us, and we are that much closer to the end.
Lastly, many have asked for our thoughts on the Obama Administration's ouster of General Motors CEO, Rick Wagoner . While we abhor government's participation in the private sector, that the government has committed taxpayer dollars means that they have the responsibility of stewardship for our dollars. It is comforting that since involving itself, government is not taking the route of passive patsy. In fact, we suggest that the Federal Reserve Bank of New York take note and become more proactive with our tax dollars it has committed to many of the nations' financial institutions. Nothing about this market environment is ideal.
We have fared pretty well so far, but the all-clear has yet to sound. __________________________________________________
Michael K. Farr is President and majority owner of investment management firm Farr, Miller & Washington, LLC in Washington, D.C. Mr. Farr is a Contributor for CNBC television, and he is quoted regularly in the Wall Street Journal, Businessweek, USA Today, and many other publications. He has been in the investment business for over twenty years.