Summer Notes on the Market

In April, we noted the market’s March turnaround and wondered whether it would continue. The hopeful signs were economists’ predictions of an end to the recession in the 3rd quarter of this year, and a lot of cash on the sidelines waiting to take advantage of new opportunities. In June, we were comfortable enough to suggest the markets were indeed headed in the right direction, that better times were ahead, possibly even markets that would end in positive territory for 2009 as a whole.Last week, the Dow crossed the 9000 mark (after descending to the mid-6000s in early March) and ended the month at 9171.61, up 8.6% in July for its best monthly performance since October 2002. Continued improvement in economic measures encourages us to think this turnaround is real; that the worst is now behind us (as always, we could be wrong), and the recession will in fact be over before the end of 2009.

Clearly, there is still a long road ahead before we recover all of the market losses sustained since September 2007. Looking at the longer term, however, gives us a clearer perspective. Here, the glass is either half empty or half full. You decide. Over the past 10 years, stocks have a rate of return of roughly zero. That hasn’t happened in the U.S. in a very long time. On the other hand, if you invested say $100,000 in the stock market (professionally and prudently) in 1999, you still have it, all of it, and probably a little more. Yes, global warming is upon us, but Chicken Little’s sky has not yet fallen.

The world economy is finding it harder to grow on a planet that has been made smaller by the Internet and is running up against its ecological limits. Future growth and profitability must be sustainable from an environmental standpoint as well as a business standpoint. Over the long haul, this means an economy in transition and probably a more conservative long-term investment approach for many of us. In the short term, though, this bull market (if it truly is that) is just beginning. If you want to optimize your recovery from the 2008 meltdown, stay the course for the next year or two, then conserve.