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Susquehanna Wealth Management Review & Outlook
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Spring 2008
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Investor's Update
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The first quarter of the year was a difficult period for investors, characterized
by slowing economic growth brought on by a slew of credit market losses and a rapid
decline of liquidity. It also marked a substantial shift in monetary Update policy
by the Federal Reserve to a focus on growth over inflation. As the
deleveraging process accelerated through the quarter, consumers, businesses and
investors were faced with a very challenging environment that featured a continued
decline in home prices, higher commodity prices and generally falling asset valuations.
It truly was a quarter wrought with volatility and few safe havens other than energy,
precious metals and U.S. Treasury debt. Risk aversion was the dominant theme!
On a total return basis, the Dow Jones Industrial Average recorded a -7.0% return
for the first three months of the year, while the S&P 500 declined 9.4% and the
Nasdaq decreased in value -13.9%. According to mutual fund tracker Lipper Inc. diversified
U.S. stock funds lost 10.1% on average. As poor as returns were domestically, global
benchmarks generally fared worse. The 5-year and 10-year U.S. Treasury Bond increased
in value 6.0%, respectively, highlighting the flight to quality. The Lehman Brothers
Intermediate Government/Corporate Bond Index advanced 3.0%, while the slightly longer
duration Lehman Brothers Aggregate Bond Index registered a positive 2.2%.
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Economic Outlook
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 While
financial institutions are in the process of reducing leverage and restoring badly
impaired balance sheets, economic data continues to point to anemic economic growth
at best. Recent data confirms slower consumer spending, a downturn in manufacturing
and non-manufacturing activity, as well as softening in the labor markets. Clearly,
the troubles that had been confined to the housing sector are now leaking into the
broader economy with no quick fix in sight. Recent indicators also
suggest that the economy started the first quarter on a soft tone and has weakened
to a point that resulted in negative first quarter GDP growth. Our interpretation
is that we are presently in a mild recession that will likely result in similar
second quarter weakness.
The good news is the Fed has acted aggressively. The bad news is that monetary policy
acts with a lag and while proposed fiscal measures will help, neither will fully
resolve the credit driven asset bubble. The exercise of repricing riskand removing
market excesses could run for a few more quarters resulting in a lackluster recovery
period. Given the existing weakness and perceived downstream vulnerability, we believe
authorities (both the Fed and the executive and legislative branches) will continue
to pursue aggressive stimulative policies as we move forward. Remember, it is an
election year!
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Capital Market Analysis
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We believe it is critical to recognize the heightened level of risk in all asset
classes. Thus we remain cautiously participatory with a focus towards further potential
impairment to overall economic growth, corporate earnings and margins as well as
general asset valuations. It is our belief that any sustained recovery
in the economy or equity valuations must be preceeded by stabilization and a recovery
in the credit markets. From a positive perspective, Treasury yields are attempting
to begin a bottoming process that we feel is an absolute necessity if funds are
to be reallocated to riskier assets. It does not seem reasonable to assume that
stocks or other riskier assets can sustain an advance, on an intermediate-term basis,
if U.S. Treasuries are pricing in more economic risk and credit dislocation.
We caution, however, that this process could be weeks or months in the making.
While current conditions seem to favor some short-term upside potential for stocks
(S&P 1370-1450 range), we do not see sufficient fundamental evidence to indicate
that the intermediate-term downtrend has been totally exhausted, at this point.
Unfortunately, we can envision significant economic hurdles that will continue to
test consumer and investor confidence. From a technical analysis standpoint, the
series of declining peaks and troughs in the major averages have also not been abrogated,
which lends credence to treating each upturn with due caution. Experience tells
us that the bottoming process can be very trying and rarely happens in a “V” shaped
pattern. One characteristic of bear markets is strong counter-trend rallies that
are followed by equally volatile downside action. We perceive a more prolonged “W”
shaped or trading range pattern.
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Summary
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While the overall risk/reward scenario of many asset classes has improved, relative
to 6 to 9 months ago, the underlying economy still faces an uncertain road ahead,
even in light of further monetary and fiscal initiatives. No one can be certain
how long the credit markets will be impaired or what the final tally of damage done
to the economy will be. The bottom line is that it’s going to take time for credit
conditions to return to normal. It seems prudent to us to reflect on how that scenario
will or could impact the quality of corporate balance sheets and income statements
relative to asset valuations. We believe the challenging earnings environment is
likely to continue until later in the year.
We are beginning to see signs of a potential turnaround, but caution is still warranted
while awaiting a durable bottom in the economy and the capital markets.
We appreciate the opportunity to serve you. Please do not hesitate to contact us
if you have any questions or if we can be of any assistance.
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Your financial needs are our highest priority. To meet with a Wealth Management
Advisor, call or visit any of our
Regional Offices. |
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Susquehanna Wealth Management is a registered service mark of Susquehanna Bancshares, Inc.
Trust and Private Client Services offered through Susquehanna Trust & Investment Company, a Pennsylvania chartered Trust Company. Brokerage Services Offered through Susquehanna Wealth Strategies.Securities and Insurance Products Are offered through PRIMEVEST Financial Services, Inc. a registered broker-dealer, licensed insurance agency, and registered investment adviser, member FINRA & SIPC. PRIMEVEST is not affiliated with Susquehanna Bancshares, Inc. or its related companies. Advisory services may only be offered by Investment Adviser Representatives in connection with an appropriate PRIMEVEST Advisory Services Agreement and disclosure brochure as provided. Retirement Plan Services are offered through Brandywine Benefits Company, LLC. and Valley Forge Asset Management Corp. Each is a non-bank affiliate of Susquehanna Bancshares, Inc. Valley Forge Asset Management Corp. is a registered investment advisor and a registered broker-dealer (member FINRA & SIPC). |
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Securities and Insurance Products Are:
• Not FDIC Insured • May Lose Value • Not Bank Guaranteed
• Not a Deposit • Not Insured by any Federal Government Entity |
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