January 2009
The New Year entered on a turbulent and negative note for both stocks and bonds. In January, the S&P 500 stock index had a negative return of 8.4%, which represented the worst January performance in the 80+ year history of that index. The other major market benchmarks suffered similar declines. The US Treasury bond market gave up some of last year's gains, with the 10 and 30 year maturities recording negative returns of 4.9% and 16.9% respectively. The same issues that impacted the financial markets in late 2008 continued to exert influence in January, including turmoil in the banking sector, unstable and poorly functioning credit markets, and slowing economies around the globe. The Federal Reserve Board, together with the US Treasury, continued to aggressively address the issues, mainly through capital infusions to financial companies and the maintenance of low interest rates. Unfortunately, with unemployment rising and consumer spending falling, economic conditions are fragile and likely worsening. The current recession will take time to work through, and corporate earnings will be under pressure. We do believe that the equity market is discounting a very poor near-term outlook, investor confidence is quite low, and valuations are compelling from a long-term perspective. Historically, this type of market environment often leads to surprising upside moves in spite of the dour news headlines and economic circumstances.
