Marketing Commentary- Q2 2002

Posted by on Jun 30, 2002 in MFA Quarterly Commentaries

With above average volatility, markets held their own through May. But increasing numbers of stories of loose corporate accounting and excessive executive greed caught up with and overtook investor confidence in June. Stock buyers have been voting with their feet in June and July sending markets down to levels not seen since 1997. The pervading sentiment is fear, which is always true at market bottoms. The occasional up day (Dow +311 one day late in June, surrounded by down days) suggest that there is still too much lingering (but fast fading?) optimism to mark a real bottom.

Trends to be Aware of

The Federal government is trying very hard to re-ignite the economy but the kindling is soggy. In addition to the 11 drops in short term interest rates that have run their course, all forms of money supply are increasing. M3 money supply, which measures large cash deposits, is at an all time high. Is the Fed now trying to encourage inflation? It is not such a wild idea. Rising prices would initially look like increased profits for corporations, thereby improving valuations (P/E ratios) and hopefully enticing cash back into corporate investments. Supply and demand is the only law of economics that consistently works. Demand for stocks has been shrinking.

What To Expect From Here

We said three months ago that stocks were not yet cheap, but since then prices have dropped by 20% (as of mid July). Valuation worries are temporarily behind us, but markets will not recover until consumer confidence returns. It is hard to see confidence returning until corporate misbehavior stories cease being front-page news. That will happen either with time or when more compelling stories take over.

Market bottoms are usually market by high volume selling, also called capitulation, when investors abandon all hope. We are closer to that time but not there yet.
Some Numbers for Comparison: The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 06/30/02.


What it Measures

Last 3 Mos.

Last 12 Months

3 Years, Annlzd

5 Years, Annlzd

Standard & Poors 500

U S Stocks w/div





Russell 2000

Small Stocks





Morgan Stanley EAFE

Foreign Stocks





Wiesenberger Tech/Comm. Funds

Technology Funds





Real Estate Inv Trusts

Real Estate





Lehman Bros. Ag Bond












Source:  Weisenberger, Thompson Financial