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Saving the Stock Market

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As I said in the May edition of Searching for Alpha (“It’s All Up to Housing”), our expectations for the equity market–even after a stellar first month of the quarter–hinged on some hint of relief from the moribund housing market.

After April and May’s resilient comeback for stocks, weakness in the finance sector dragged the market down significantly in June, resulting in the third consecutive losing quarter for the S&P 500 index. Most of the problems, as expected, were mortgage-related. With analysts absolutely moribund, investor psychology wrecked, and large cap indexes at 2008 lows, investors must be wondering if there’s any chance of short-term relief for this market.

For a quick boost, nothing would impact stocks more favorably than a significant sell-off in the energy complex. Though there are legitimate fundamentals behind the high price of crude oil, the thesis for tighter inventories and heightened demand wouldn’t be wrecked by a $20/barrel pullback. If prices stabilized at this level, transportation stocks would bounce; earnings estimates would increase, and the uncertainty that has gripped the capital markets would at least be temporarily assuaged.

As in all equity downturns, the current malaise in the stock market is equal parts economic and psychological. By improving the latter, even in the short-term, equities may be able to find a bottom.

The Monthly Index Report for June 2008





S&P 500 Index* -8.6%


-12.8% Large-cap stocks




Large-cap stocks
Nasdaq Comp.*




Large-cap tech stocks
Russell 1000 Growth




Large-cap growth stocks
Russell 1000 Value -9.6%



Large-cap value stocks
Russell 2000 Growth




Small-cap growth stocks
Russell 2000 Value




Small-cap value stocks




Europe, Australasia & Far East Index
Lehman Aggregate -0.1%



U.S. Government Bonds
Lehman High Yield




High Yield Corporate Bonds
Calyon Financial Barclay Index**


2.0% 7.9% Managed Futures
3-mo. Treasury Bill*** 0.2% 0.3%


All returns are estimates as of June 30, 2008. *Return numbers do not include dividends.

** Returns are estimates as of June 27, 2008.

Ben Warwick is CIO of Memphis-based Sovereign Wealth Management. He can be reached at [email protected].


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