2009 Market Preview

January 15, 2009

Our fourth quarter Investment Perspectives Newsletter provides an overview of 2008’s turbulent events in each asset class. We also highlight potential investment opportunities going into 2009.

No opening sentence can convey how difficult a year 2008 was for the financial markets. Most domestic equity indexes suffered losses over 35%, international stocks were crushed, fixed income prices dropped off a cliff as yields spiked, real estate values continued to fall and hedge funds blew up while getting hit with redemptions; it was the classic “correlation goes to one” as all asset classes delivered painfully negative returns. In total, close to $29 trillion was lost as a result of the global equity market declines. The only safe haven from the market carnage was in U.S. Treasuries, and investors flocked in droves, even accepting a negative yield on T-Bills for the comfort of (mostly) preserving the principal value of their assets. This “flight to quality” was representative of the fear running through investors as they took their money and made a mad dash for the exits. Their exit along with forced selling (“deleveraging”) and limited liquidity from hedge funds, investment banks and other speculators collectively fueled the second worst calendar year return on record. The only worse year was 1931 when the S&P 500 fell 43.4% in the midst of the Great Depression. Although the economy has not dipped to Depression-era lows, 2008 was a painful year.

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