Second Quarter 2009 Market Recap
A strong stock market rally, aided by revived credit markets and signs of economic stabilization, provided welcome relief to investors over the past few months. U.S. stocks, as measured by the S&P 500 and Dow Jones indices, posted gains of 15.8% and 11.8%, respectively, in the second quarter of 2009, putting an end to the longest streak of quarterly losses since 1970. The rebound, which began in March when the market was down 25% year to date, has pushed the S&P 500 index into positive territory for the first six months while the Dow was still two percent negative. I am extremely happy to report that while most other managers shied away from the equity markets, clients of Shapiro Asset saw most of their excess cash put to work in early April and they were well rewarded. Clients with equity only mandates had a composite return of 17.6% for the quarter and 3.5% for the first six months.
As I wrote in the prior newsletter, Investor sentiment was buoyed by signs that the downward economic cycle was slowing during the quarter. Particularly encouraging was the sign of slowing in the rate of job loss and the contraction of the housing market. However, economic data is still negative and it put pressure on the market rally toward the end of the quarter. Going forward, many analysts expect the recovery to remain weak as the primary focus of many, unemployment; remains elevated which weighs directly on consumer spending.
All major economic sectors of the S&P 500 index ended the quarter in positive territory, led by an extraordinary rally in financials, many of which rallied from levels indicative of companies nearing bankruptcy. Viewed as the impetus of the current global economic downturn, financial stocks were boosted by early signs of economic recovery, better than feared results from the federal government’s stress test, and news the Treasury would allow several large banks to repay some of the TARP money received last fall.
Looking forward I am optimistic that the worst of the global economic and market meltdown is behind us. My optimism is tempered with concerns that the market may have gotten a little ahead of itself and may experience a period of “back and fill”, which basically means the fundamentals of the economy and companies now have to catch up to the rally we have experienced. The next driving factor for the market may well be the hundreds of corporate earnings reports being announced over the next few of weeks. Multinational companies should have favorable earnings due to the weak dollar while expectations are still low for most other companies so positive surprises should be achievable.
Thanks again for your confidence in Shapiro Asset Management.
Marc Shapiro
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