After recovering off the March lows, stocks largely held their ground for the month of April. The Dow Jones Industrial Average kicked off the month on the heels of its best four week percentage gain since the great depression. What goes down must go up eventually, right? From March 6 through April 3, the Dow gained 1390 points (+20.9%)after having fallen to 6547, more than a 20% decline from the start of the year. As much as it would have been appreciated for the rally to continue at that pace, this new bull market ran out of steam early in the month before regaining a bit of momentum as April came to a close. For the month, the Dow gained 559 points (+7.3%) closing at 8168.
On a percentage basis, the NASDAQ outperformed the Dow for the month as strength in the tech stocks pushed the index higher. On April 24th, the NASDAQ traded over 1700 –its first foray above this mark since November 5 of last year. Unlike the Dow, the NASDAQ continued to recover throughout the month as it gained 188 points (+12.4%) to close at 1717.
For the year, the Dow is still down -6.9% while the NASDAQ is up 8.9%.
The never-before-experienced bull market AND bear market in the first quarter couldn’t have ended better –with the bull market recovery coming after the bear market had run its course. The ultra-volatile market environment is likely to continue over the course of the next several years as institutional investors jockey for the best position in a race against time. It has been said that in the short run, the markets are a voting machine (with hundreds of millions of votes cast every day either for the bulls (buys) or for the bears (sells)). So far this year the votes on both sides have been many, with either camp winning at one time or another. But over the long run it has been said that the markets are a kind of weighing machine, measuring the value of earnings that free market capitalism is likely to produce over a longer period of time. To this end, the markets have been telling us something really important: the value of the future earnings power for the entire system is REALLY difficult to model. Hence the tremendous market volatility and lack of predictability which is likely to continue.
The Appleton Group Composites™
After a volatile first quarter during which The Appleton Group Composites experience both periods of significant out performance (good when the markets were down by 25% for ‘09) and excessive correlation to the markets (not so good when the markets finished the first quarter down by more than -10%), the month of April has been a whole lot more stable and more profitable for our investors. Those that have followed our story overtime and understand our overall investment philosophy recognize that beating our benchmark at any time isn’t really what we’re after. I hate losing money. It causes our clients to feel stress, it causes undue discomfort for all of us, and most importantly it pulls us further away from meeting our clients’ financial goals. No good can come of it. Well, almost none.
The only good that can come of it is a recognition that if we are successful at limiting losses in any year to a fraction of those experienced by less flexible strategies, we will come out sharply ahead at the end of the day. We will better meet our clients’ portfolio growth goals with or without the markets participating over time. It’s the total return that our investors’ portfolios experience that is most important. Everything else is less important. Markets should be looked at as nothing more than tools that can be used to produce portfolio gains over time. The stability and portfolio advances that April has demonstrated have certainly been welcome for everyone. Should the more supportive trend that has emerged over the past several weeks prove sustainable, the first quarter of 2009 could be seen as nothing more than an unwelcome diversion. All of our portfolios continue to track substantially ahead of our peers during this bear market, with each of our core managed offerings(Appleton Group PLUS, Tax Managed Growth and Appleton Group Portfolio Composites) poised to achieve breakeven well ahead of our bench marks.
As always, we recognize that markets present wonderful opportunities from time to time, and this bear market is no exception. We see tremendous appreciation potential not only for our normal slate of core indexes (such as the NASDAQ 100, the Dow, the S&P 500, Russell 2000 Mid Value, etc.) but also for several market sectors that should appreciate considerably in any economic recovery (including financial services, real estate and basic materials). In any economic recovery we also see considerable risks in permanent exposure to most fixed income assets, as any re-inflation of the economy is likely to wreak havoc with principal value in these areas. Flexibility still rules the roost, and to that end we believe that the dynamic market of the next several years are likely to be very useful to our way of investing.
The lesson learned by Tim Geithner as a result of his “non-speech” speech in February (where he didn’t really say anything substantive) has really paid off. At every speech since that day , Mr. Geithner has been clear, he has been direct, he has become “Terrific Tim.” It had been said that markets hate uncertainty, and the increased specificity of the Treasury and the entire Obama administration has been most welcome. Just as important is the practicality with which the new administration has sought to tackle bank stress tests, unemployment, and the reinvention of the automotive industry. It is clear that the global economy and regulation of the financial system will have to be overhauled in order for new market highs to be achieved. In the long run, this is a wonderful thing because it can only serve to increase confidence that the U.S. markets are fair, transparent, and useful.
As far as the recovery effort goes, confidence is critical especially consumer confidence. Good news here as recent reads on consumer confidence have been sharply higher than those at the end of last year. Turning the economy around is a bit like turning the Queen Mary in the middle of the Fox River. It can happen, but it requires a bit of time. Once underway, the forward momentum may be hard to stop, just as the downward momentum was difficult to contain last year. So far so good, as establishing a base today is the first step toward re-taking Dow 10,000 down the road.