May Letter To Clients {Part I}

Like refugees, investors left their winter bomb shelters and finally took a look at the outside world and their investments again.

Emerging From The Rubble

Investors emerged from the rubble and tried to reconnect with their old lives. First came another mid-winter scare that sent stocks sliding on average another 25%. This last leg down came from missteps by the new Obama Administration, particularly in some early miscues regarding the banking crisis. The fact that corporate earnings were still falling off a cliff did not help either.

However, by mid-March, investors decided that stocks had become bargains. Share prices stabilized and then began a rally that trough to peak took the S&P 500 up close to 40%. Stocks are currently close to where they ended 2008. Recently, stocks have begun to exhibit traits that are characteristic of at least some pause in their current advance.

Where We Stand

I like pictures because I am a simple person. I have included below two charts showing what I believe is going on with the market.The chart pictured above shows a longer term view of the S&P 500 dating back to 2007. It puts this decline into perspective in terms of its length and depth. It also shows the current trading range we are in. We are still over 40% below the October 2007 highs and are still 25% below where we traded at the end of last summer.