Market Commentary for the week of March 2, 2009

While the cyclical expectations for the market continue to disappoint, the secular downtrend remains intact, confirmed by the actions of last week's trading. Once again, it is important to distinguish between the day-to-day movements of equities versus the longer term parabolic trend. Unfortunately, there is very little to dissuade quantitative analysts from confirming that we are still in a recessive bear trend.

I will, however, leave behind my negative bias to report that I see the opportunity for real return from equities as being at its greatest level in nearly a decade. This comes from my respect for "value investors" who believe that the cheaper the market gets, the better it looks. Combining our two fundamental approaches, and respecting that you don't want to buy stocks "on the way down", we both come to the conclusion that a bottom is imminent, albeit not yet here. Therefore, amidst all the gloom about short-term performance, it is with a sense of optimism that I survey the current landscape.

My review is a multi-dimensional process, first evaluating the magnitude of decline, and then factoring in the velocity of those movements. Adding in the fundamental economic overlay, one might conclude that despite a drawdown in market valuation, there is sufficient reason to be positive about sector rotation and a rebalance of asset allocation potential. As the national debt increases, for example, capital expenditures in infrastructure, healthcare and education lay the groundwork for profit potential, as well as economic expansion, within those sectors. Historically, then, today's negative news might be the harbinger of opportunity that the short-termers are missing in their myopia.

I cannot ignore that current short-term velocity in the market is a significant deterrent to investing in stocks, at present. Although one might postulate about longer term trends, the real poison is in the current negativity that investors feel about market performance, job security, declining home values, low savings, and high prices. Therefore, despite the potential that a turnaround in equity performance might bring, we must be realistic in assessing the potential for lower equity prices for the balance of this year.

Offering one false start after another, the markets give no sign that a turnaround is imminent. Said another way, I would be cautious about chasing devalued stocks because we don't know which bottom is for real. Instead, at the very least, I would focus upon earnings performers in sectors which heretofore have proven to have staying power, such as basic materials and consumer non-cyclicals. Also, I would look for yield in select utilities shares, if the share price has proven "immune" from short term fluctuation. The opportunity cost for sitting on the sidelines might be too great, especially if the enduring secular trend in those favored sectors continues to hold strongly against negative forces.

We know that news and exogenous events happen too quickly to try and "time" the market. Sometimes the intersection of cyclical, data, and secular forces happens faster than we are able to respond. That is why portfolio managers like me rely upon asset allocation and balance to project into the future. Indeed, we cannot predict with accuracy or certitude what the future might bring. But we can use our science and methodology to limit the extent of negative outside forces upon performance of our client's accounts.

Last year, we did this quite successfully. Already this year we have used portfolio allocation to mitigate the calamity which has been wrought by daily news and exogenous forces upon portfolio performance. As we await the drumbeat of response from fiscal and monetary stimulus proposals, it is important to maintain a steady hand upon the tiller. I do not anticipate any shift in negative bias in the shot-term. Therefore, expect more of the same for the coming week, and beyond.