Quarterly Markets Summary
1st Quarter 2008 Markets Summary The first quarter of 2008 was definitely memorable for investors, much in the same way drivers remember their first auto wreck. Bad economic news roiled equity markets with stunning force, with the DJIA falling 7.6% for the quarter and the S&P 500 extending its longest losing string since 1990. Optimism that the U.S. economy could somehow avoid a recession despite the clamor in the housing and fixed income markets faded into the gloom of today’s economic realities.
The quarter ended instead with concerns over how long the downturn might be rather than if there might be one. Markets have gone from the assumption of increasing corporate earnings to expecting falling results at least for the first half of 2008. The recovery of corporate equity and fixed income markets are now poised on gauging the time frame for recovery and a return to more normal liquidity conditions. Inflation continued to remain stubbornly high, and concern for the strength of the dollar accelerated as the Fed was forced to accommodate the sudden liquidity crisis in the credit markets. In addition, since the start of the year the Fed has slashed the key Federal Funds rate to 2.25% from 4.25%, and it backed J.P. Morgan Chase's deal to acquire nearly-defunct Bear Stearns.
Worries continue that that job losses are only just beginning and home-price declines appear to be accelerating. Meanwhile, raw materials costs remain stubbornly high, despite the slowdown in the U.S. economy, which will likely pinch consumers more and crimp corporate profits. Optimists point to the Federal Reserve’s rate cuts and bold stabilization moves as reasons for hope, and as we continue to navigate seemingly stormy waters we can take some solace in the relatively reasonable values in select equity sectors.
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