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Market's bottom-out marks first anniversary

What a Dow difference a year makes.

This Tuesday, March 9, marks the one-year anniversary of the Dow hitting a most dramatic market bottom, closing that day in 2009 at 6,594.4. That's a harrowing 57 percent decline from the market peak of Oct. 7. 2007.

Even the most seasoned market watchers get wide-eyed when asked to relate what it was like 365 days ago. It's easier now, with the Dow up sharply from last March, to be analytical and profess faith in the power of the markets.

Not so on 3/9/09.

"I had no idea what the next day might bring," recalls Raymond James Financial CEO Tom James, who's lived in the stock market world for over 40 years. "If we had not had a Federal Reserve chairman and Treasury secretary to maximize liquidity and lower the cost of money to nothing," he says, the country's struggling financial system "would not have made it."

"There was a worry that life as we knew it was coming to an end," acknowledges longtime financial adviser Ray Ferrara, CEO of Pro Vise Management Group in Clearwater.

A year ago, words like "on the edge of a cliff" or "looking into the abyss" were not uncommon. There was just enough talk about a Dow 5,000, a Dow 4,000 or worse to shake the investing veterans of 1987's Black Monday crash and the severe 1973-74 downturn or even those elders steeped in the angst of the Great Depression of the 1930s.

Tampa wealth adviser Geoff Simon may best sum up a year ago. "It was akin to the feelings people had after 9/11. It was that same sense of uncertainty."

A year later, of course, the experts I talk to about the markets are speaking with a confidence renewed by the Dow rising nearly 4,000 points, with the Dow closing Friday at 10,566.20. But they remain guarded in their assessment of the still-struggling economy, the genuineness in the market's bounceback and the delicate psychology of still-wary investors.

If the Great Fear is gone, extreme fidgets remain in the investing community. Consumers who have jobs are still worried about keeping them. A stunning portion of U.S. homeowners, especially in once-booming Sun Belt states like Florida, are underwater (owing more on mortgages than their homes are worth), and the amount of wealth lost in 401(k) accounts is still formidable despite the market's partial bounceback.

On Friday, the national unemployment rate for February came in, again, at 9.7 percent. That's a reassuring signal that the U.S. jobless rate remains steady and under double digits (though Florida last reported 11.8 percent unemployed). Like it or not, people are learning the acronym PIGS stands for Portugal, Ireland, Greece and Spain — four European countries in various stages of economic emergency. China's economic stability is also a concern.

In Washington, ultra-partisan politics means businesses still have no idea what to expect on health care or financial reform, climate change rules or taxes. And in Tallahassee, the mandatory "balancing" of the state budget is a facade laced with raids on funds meant for other uses and heavy borrowing from the federal government.

It's that climate that makes businesses reluctant to expand and even less willing to create jobs. And that, experts suggest, is why the Dow has been treading water just over 10,000, just as the S&P and other market indexes have made little headway since the start of 2010.

"To get beyond, we will need to find some fundamental signs of economic recovery," says Sean Snaith, director of the University of Central Florida Institute for Economic Competitiveness. "Right now, there is still a fair amount of uncertainty." Any threat of a "W" recovery — economic shorthand for a double-dip recession — is low, says Snaith. He prefers his gravy boat-shaped recovery: slow and lumpy.

The rebound in the stock markets has been anything but balanced. Analysts have dubbed it a "low-quality rally" because companies with the biggest gains are those with weaker credit ratings. Snaith adds that many companies have been replenishing inventories they slashed during the worst of the recession. But that does not guarantee the U.S. consumer will be motivated to resume higher levels of purchases soon.

Indeed, John Lekas, manager of the Leader Short-Term Bond Fund, was quoted last week saying the U.S. unemployment rate could hit 16 percent by summer. Worse, he says we focus on the rosier unemployment data. If we include both the unemployed and "underemployed" workers with reduced hours who "can't pay their bills," we may see that more broadly defined unemployment rate hit 25 percent by midyear.

Still, there are signs of a thaw. A Wall Street Journal story last week said once-expansion-wary corporations are now so flush with cash, more deals (mergers and acquisitions) are starting to percolate. And the Conference Board, a national business group, says its recent survey of top executives found that "CEOs appear to be emerging from recession mode and priming for a return to growth."

In Tampa, Simon, who is senior vice president of investments at Simon Johnson Stanger Wealth Advisors, part of Raymond James & Associates' network, cautions that investors are still fearful. Just less so.

"They are more confident, but everyone is looking over their shoulder," Simon says.

At Clearwater's Pro Vise, adviser Ferrara says he would be very happy to see the markets deliver an 8 to 10 percent return this year. For that bullish performance, he says companies need to deliver sustained growth in revenue in their first-quarter earnings reports.

"If we see that, then we are slowly clawing our way out of a difficult situation," he says.

Maybe that's when we'll feel our fears subside. Ask me on the second anniversary.

Robert Trigaux can be reached at trigaux@sptimes.com.

Market's bottom-out marks first anniversary 03/06/10 [Last modified: Friday, March 5, 2010 8:54pm]
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