Perspective Over Panic, Please.

There’s no denying it’s been a tough start for equities in May. And for many investors, I’m sure recent market activity is conjuring up feelings reminiscent of 2008. However, before panic sets in it’s always good to get perspective. Admittedly, we’ve seen a measurable pullback from the April peaks, but even after today’s continued sell-off, year-to-date numbers for the major indices are nothing unusual for being four months into a year.  Understanding a 5%-10% correction is often typical when valuations become extended further helps keep recent market activity in context.

From April Peak

YTD

DJIA

-7.35%

-0.46%

S&P 500

-8.72%

-0.38%

S&P 400

-10.98%

4.12%

Russell 2K

-11.98%

4.41%

GH Moderate (est.)

-11%

-0.68%

GH Core (est.)

-13%

-1.00%

 However, inevitably we become myopic in our views, especially when nerves are rattled.

This isn’t to say some level of skepticism isn’t healthy. But, perspective is important. In 2008, we had essentially a perfect storm, credit freezing, equity markets tanking, a financial system on the brink, major companies like Bear Sterns, Lehman Brothers, FNMA, Freddie Mac, WaMu in trouble and defaulting, not to mention spiking unemployment, disappointing earnings. And the list goes on. In contrast 2010 brings solidly improving economic numbers. GDP at 3.2% annualized vs. -6.4% a year ago. Improvement in jobs (Nonfarm payrolls up 290K just today). Solid earnings reports from a number of companies. Signs of improvement in the housing market. Even AIG is posting profits to the tune of $1.45B. In fact the biggest overhang right now, aside from trade routing investigations, is the obsession with Greece and the sovereign debt contagion. To be sure, a sovereign default would not be a welcome event. But as is often the case, the issue is more a crisis in confidence than anything else. As European leaders continue to work through the issues, we expect investor confidence to be reclaimed.

When emotions run high, decision making abilities become impaired.  It is for this reason, we rely on our well developed strategies to guide us through these scenarios. The Good Harbor U.S. Tactical strategy is designed to avoid sustained bear markets. When the information we monitor (i.e. return momentum, yield curve dynamics and economic conditions) begins to suggest prolonged weakness, we will take a defensive posture. At the moment, we maintain our current allocation.

Best regards,

Neil Peplinski, CFA
Managing Partner
Cedar Capital Advisors, LLC
8770 W. Bryn Mawr, Suite 1300
Chicago, IL 60631
Office: 312-612-2245
Mobile: 847-309-9851
Fax: 630-982-1711