April 07, 2000
Though the snow has given way to sunshine and we are well into spring, recent stock market gyrations have made it feel more like a “hazy shade of winter.” In our year-end newsletter we mentioned that we “remained cautious.” Until the second week of March, the markets seemed to be on course for another record quarter with NASDAQ going through the stratosphere. Then President Clinton and Abby Joseph Cohen, the widely acclaimed investment guru at Goldman Sachs, rained on our parade. On March 13th President Clinton announced an agreement with Prime Minister Tony Blair to grant open access to genetic information. This sent biotechnology stocks and with it the rest of the market into a tailspin. Two weeks later Abby Cohen reduced th equity allocation in her balanced portfolio model to 65% from 70%. This, together with the delay in increasing oil production by the OPEC and the long drawn out Microsoft trial, dealt the final blows to the market.
All this has given rise to speculation that “value” style investing is back. Proponents of value style investing say that “old economy” stocks, stocks that trade on the NYSE and which use more traditional stock valuation measures, have made a comeback and is when investors should be focused. “New economy” followers disagree. They believe that technology issues, which are mostly traded on the NASDAQ, is where the action is going to be moving forward.
Regardless of all the rumblings in the NASDAQ, the quarter continued to be dominated by the technology and telecommunication issues. IN particular, the bellwether technology issues such as Cisco, Intel, Sum Microsystems, and Dell help up a sagging market while the “old economy” stalwarts held their own. Once again, small cap stocks disappointed while international funds continued to be the one constant bright spot. A decision by the federal government to discontinue the 30-year long bond sent pension funds and insurance companies scurrying into the treasury market. This demand sent the yields on the 30-year treasuries below 6% and brought about an inverted yield curve that has not been seen since the recession of 1990-91.
Whatever the pundits might say, the fact remains that we live in an era of e-commerce – a new order, a new revolution skin to the industrial revolution at the tun of the 20th century. Turning a blind eye to this fact would be at the peril of the modern investor. Therefore, we will maintain the current weightings in technology and telecommunications for our long-term equity portfolios,. Nevertheless, we do caution our clients against unrealistic expectations of double-digit returns.
Sincerely,
President
Vice President