The Markets
A broad-based rally on Tuesday got the 2nd quarter
off to a great start. The Dow Jones Industrial
Average started the month with a 391 point gain
(+3.2%) on a day when the news was anything but
good. Swiss bank UBS announced a record writeoff
of some $14 billion at the same time that
Lehman Brothers was scrambling to place a
multibillion preferred stock offering. It was the
third Tuesday out of the last four in which the Dow
has posted a 350-400 point gain. But as has been
the case for several weeks, the one-day advance
failed to find much follow through for the rest of
the week. For the period the Dow gained 393
points (+3.2%) to close at 12609.
As evidence that a short-term bottom may be in
place, the NASDAQ outperformed the Dow on a
percentage basis for the second consecutive week.
The tech-heavy index has now advanced for three
weeks in a row. For the period the NASDAQ
gained 110 points (+4.9%) settling at 2370.
While much work has yet to be done in healing the
significant damage in the first quarter, institutional
support for equities appears to be increasing.
It appears that the markets are putting in at least a
temporary bottom, as evidenced by a recent strong
positive shift in institutional sentiment. The “wisdom of the crowd” right now says that things
in the economy are so bad that it would be difficult
for them to get much worse. The logic is flawless,
in that if things can’t get any worse, they can only
get better, right? Market bottoms really are
problematic in the same way that market tops are:
you don’t know for sure if they really exist until
you’ve already passed them. Recently, our asset
allocation has gone from downright defensive to
neutral to now slightly assertive. This is a bit like
dipping your toe into a pool, then wading in a bit
further little by little. If we really have a lasting
bottom (made almost exactly at the end of the 1st
quarter) we will be able to hold our offensive positions for an extended period of time. If the market bottom proves
a mirage, we stand ready to adjust further towards a more neutral stance. So far this year, the volatility has
benefitted our discipline tremendously.
Looking Forward
First quarter earnings season is quickly approaching, and all indications are that it will be a mixed bag. Financial
companies are likely to produce dismal numbers, but much of that is largely “baked into the cake.” What these
companies say about 2nd quarter earnings will be much more important. With there being no hard data to suggest
that we’re already in a recession, there’s a real possibility that by the time the data catches up with reality we may
already be out if it! This isn’t at all unusual, but it is a bit quirky. The consensus among economists is that nonfinancial
companies will produce on-target annual earnings growth of between 6-8%. Not bad, considering the
severity of the problems the economy has had to deal with over the past three months. As is so often the case, what
WILL happen tends to be so much more important that what HAS happened, and looking forward tends to be much
more valuable than looking back.
Please visit www.appletongrouponline.com to learn more about The Appleton Group Composites™.
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Appleton Group Market Comment is produced by Appleton Group Wealth Management, LLC using sources which we consider reliable, however this is
not a complete analysis of every factor impacting the equity markets, and the completeness and accuracy of the information cannot be guaranteed. The
opinions expressed are those of Mark Scheffler and those of our third-party research partners.
Appleton Group Market Comment is prepared for informational purposes only, and should not be construed as an offer to buy or sell any security or to
participate in any particular investment strategy.
?2008 Appleton Group Wealth Management LLC. All rights reserved.
(c) Appleton Group Wealth Management, LLC
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