May 2009 report

Last Updated Monday, 06 December 2010

A nice thing about Bear markets is that they do not last Forever.

a) Do we witness a bull rally, a bear rally or a stabilization process? The trillion dollar question remains. The recovery from the March 9 lows continued in April and we experienced the best monthly performance since March 2000. Financials recovered by about 70% from their lows. Moreover, the recovery continued in the first days of May. Probably, the free market system, business and finance are not dead after all!

b) Macroeconomic news show definitely a decrease in the rate of contraction of the economy. Consumer confindence and earnings announcements were better than expected (-32% vs –36%!). Earnings expectations have dropped reducing the possibility for disappointments. Housing on both sides of the Atlantic appears to have stabilized. Corporate Bond spreads have narrowed considerably and credit appears to flow better into the system as the relaxation of mark to market accounting alleviated pressures on the capital of banks.

c) However, “We are not out of the woods yet”. We cannot forecast exactly the reactions of consumers and investors to the strong policy measures and thus the timing of the economic recovery. Technically, “Trees do not grow straight to the sky” and a correction in the stock market is probable. We hope that we will not experience in the real and financial sector a re-testing of the October and March lows.

d) The stock market has started differentiating again between different sectors. Technology, cyclical and industrial stocks perform better than health care, food and other defensive stocks forecasting an economic rebound.

We are more optimistic but cautious. N.Ritsonis
May 5, 2009