Market Summary
First Quarter 2010
Despite a January hiccup resulting in part from concerns over a possible Greek debt default, U.S. stock markets climbed higher for a fourth consecutive quarter. Yet there’s good reason to practice caution in today’s environment and focus on responsible financial behaviors.
We are increasingly concerned that many market participants overestimate the sustainability of the current stock rally, unwisely counting on the continued support of short-term traders who will not hesitate to sell their positions if they expect stocks are headed for another decline. Valuations for stocks, while somewhat attractive relative to other financial assets, do not provide a firm basis for confidence in earning average or better equity returns over the next decade. Neither do current yields inspire much hope for bond returns in excess of their income. Factor in punitive interest rates for diligent savers — it’s their opportunity cost that’s funding global recapitalization — and prudence calls us to plan for an environment of below-average investment returns.
This doesn’t preclude an upside surprise; in fact, corporate earnings could be so strong that stock investors may look past, or at least adjust to, a long period of subpar economic growth. But the odds do not favor success for those who rely upon optimism in lieu of commitments to a higher personal savings rate, thoughtful rationing of household spending and careful risk management.
Data used in this report is for information purposes only. Past performance is no guarantee of future return. The views expressed are an appraisal of the current environment and possible events. It is always wise to consult a financial professional before investing.
