Happy Anniversary, Market Low!

March 14, 2011

Major market indices were higher last week. The DJIA added 0.33%, the S&P 500 gained 0.10%, and the Nasdaq increased 0.13%. Growth stocks outperformed value stocks. And the small cap index gained 0.37%. The 10-Treasury yield closed 8 bps higher at 3.49%.
Exactly two years ago, on March 5, the S&P 500 bottomed like Charlie Sheen. 682. A stunning 52% fall from grace.
At the time, the world economy was miserable. Crying uncle. Economists with monikers like Dr. Doom were feted on late night television.
Bear Stearns collapsed. Lehman Brothers imploded. Merrill Lynch was taken as the bride of Bank of America in a shot-gun wedding arranged by Uncle Sam.
People who owned things had been seriously hurt. Real estate. Stocks. Bonds. Pride.
Investors wondered if they'd ever recoup their losses. How they'd retire. How much lower could the market actually fall?
Fear and loathing was in. Optimism was out. At the time, people called it "a paradigm shift." Of course, the nastiest situations usually are.
Today, the market closed at 1,310. Two years removed from that financial catastrophe, wounds are beginning to heal. The market returned 27% in 2009. 14% in 2010.
2008 was a 500-level doctoral thesis on risk. To be rewarded, one must risk something first. But, too much risk and things can get ugly. Quick.
Our models work to provide finely calibrated exposure to risk. Usually, they work pretty well. Sometimes things can go against us. But we get it right most of the time.
Two years ago, if you'd have told me that the S&P 500 would close today at 1,310, the U.S. economy would be in full recovery, and San Francisco would win the World Series, I'd have thunk you crazy.
As always, mean reversion. In markets. In life. One moment-crisis. The next, recovery.
Technology. Midcaps. Energy. Industrials. We believe these areas will continue to trend higher. Our models will continue to seek ways to profit by them. A little risk. Some reward. Stay tuned...

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