March 7, 2003

With so many reasons, excuses and market perspectives from erstwhile prophets offering their profundities regarding why the market continues to track lower, investors should remember two simple things: first, we are in the midst of a historical BEAR market and, second, the economy is showing signs of sliding off the recessionary ledge into the abyss of DEPRESSION. Stock prices reflect this fact. You may safely forget the remaining 10 to 50 reasons proffered from time to time by various pundits. Though the Federal Reserve and the Administration maintain that the economy is only weak, the truth is that a "jobless recovery" is no recovery at all.

The Standard & Poor's 500 index continues to probe lower and may well re-test the October 10, 2002 lows. Whether or not these levels hold will give us some idea of what lies ahead. The losses to date are in the area of $8.0 to $10.0 trillion since the market peak in 2000 and are equal to nearly the entire GDP of the U.S. for an entire year. The chart below depicts the trend since early 2002 when the S&P 500 was trading in the 1050 - 1150 range through early March 2003.

Chart courtesy of DecisionPoint

With the market still probing for a bottom; the economy still weak; unemployment continuing to rise; new job formations feeble and consumer confidence at a new low, we do not look for equity prices to stage a sustainable rally. In February, the country's unemployment rate rose to 5.8% as companies continued to shed jobs, reducing 308,000 in the month. In the employment compensation area of $40,000 and higher per annum, some observers project an unemployment rate somewhere in the range of 18% to 20%. Many commentators believe that the weakness in stock prices is attributable to the uncertainties of war with Iraq and what the aftermath of our attack on Iraq will be on the mid-east situation in general. Of particular concern is whether the region will remain stable, and whether or not the oil price will rise to such an extent that domestic economic activity will be further retarded.

Investors should, with the exception of special situations, "keep the powder dry" and await better economic/employment signs ahead before committing additional funds to equity markets.