Two questions are on the minds of most investors these days.  How much further will this market decline?  And, what will it take for the markets to head back up?

It has almost been one full year since this market first began its downturn.  The housing bubble, which led to the credit market woes, which then led to a crisis in confidence in our financial system, has been the main reason for the market downturn.  Oil sustaining its price over $120 a barrel is simply the tree trunk that broke the camel’s back.

History tells us the average length of “up” markets since 1947 has been 45 months, compared with just 11 months for “down” markets.  The average up market saw a total return in the S&P 500 of 138%, versus an average loss of 22% in the down months.  We are currently in the 10th month of a down market, with a 20% decline in the S&P 500.

There are several market “clichés” that have always bothered me:  1. “This is not a stock market, but a market of stocks.”  2. “I am cautiously optimistic.”  3. “This time things are different.”  With that said, let me just say, “This time things are different.”  Oil prices are at an all time high, credit markets are wreaking havoc on the confidence in our financial system, and the housing market is in who knows what shape.  This all means continued uncertainty and market unrest.

So what will put this market back on solid ground and a march back upward?  First, all the loose leaves on the tree need to be shaken off.  We need to see stability in the financial system.  The Bear Stearns “save” was a start.  It showed that government intervention can help create stability.  We need to see a solution to the Fannie Mae and Freddie Mac problem.  Second, we need to strengthen the dollar.  This won’t happen until the Fed starts raising rates.  We need them to show a little backbone with regards to the inflation outlook.  Once rates move up, the dollar should strengthen which would bring down commodity prices.  This would in effect be a ‘tax break” for consumers.  Once consumer confidence turns around, the market should see better days.

It is never a good feeling to see the value of your investments decline.  We remind clients that any allocation to equities should be for the long haul.  If you needed the money and had to sell today, it wouldn’t be pretty; but, the fact remains, you don’t have to sell today.  We advise a continued focus on your investment strategy, and, we should only make changes if your current financial situation changes.

Please do not hesitate to call your Portfolio Manager with any questions or concerns about the markets or your portfolio.