7.10.2001 2001 Second Quarter Client Letter
In the 2nd Quarter 2001, the markets moved higher anticipating the economy would begin to grow. Growth stocks continued to swing wildly up and down. Value stocks gradually moved higher. Since June 30, the markets have sold off due to the lack of visible signs of an economic recovery. The economy has slowed dramatically as corporations have been caught with too much inventory and slowing corporate spending.
When stocks fall fast, it can be hard not to panic. But history has shown that selling after a dramatic bear market can be dangerous. The following chart illustrates the 1, 3, and 5-Year returns following a bear market. The average duration of a bear market is only 10 months. The current bear market is over 12 months old.
Bear Markets in the S&P500 Index
|
|
Duration |
|
% Return in Following: |
| Peak |
Trough |
(Years) |
% Loss |
1 Year |
3 Year |
5 Year |
| May 29, 1946 |
May 19, 1947 |
1.0 |
-28.5 |
18.9 |
37.0 |
71.5 |
| July 15, 1957 |
October 22, 1957 |
0.3 |
-20.7 |
31.0 |
35.2 |
41.6 |
| December 12, 1961 |
June 26, 1962 |
0.5 |
-28.0 |
32.7 |
56.0 |
75.2 |
| February 9, 1966 |
October 17, 1966 |
0.7 |
-22.2 |
29.8 |
31.5 |
33.0 |
| November 29, 1968 |
May 26, 1970 |
1.5 |
-36.1 |
43.8 |
55.2 |
30.4 |
| January 11, 1973 |
October 3, 1974 |
1.7 |
-48.2 |
38.1 |
55.4 |
76.0 |
| February 13, 1980 |
March 27, 1980 |
0.1 |
-24.7 |
50.9 |
70.2 |
101.2 |
| January 6, 1981 |
March 8, 1982 |
1.2 |
-22.3 |
40.9 |
66.9 |
168.6 |
| August 25, 1987 |
December 4, 1987 |
0.3 |
-58.3 |
20.9 |
39.6 |
82.0 |
| March 24, 2000 |
April 4, 2001 |
1.0 |
-27.8 |
? |
? |
? |
|
Average |
0.8 |
-31.7 |
34.1 |
49.7 |
75.5 |
Actions are being taken to help bolster a turnaround in the economy in late 2001or 2002. The consumer continues to spend as consumer spending is expected to be up 2.4% this year. The Federal Reserve cut interest rates for the sixth time in six months totaling 2.75%. Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001. All three actions are positive signs for an economic recovery.
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