Equity Market Commentary
April 2007
Markets Hit a Bump
Equity markets bumped into an obstacle in the first quarter of 2007 that slowed the pace of the journey but likely did not change the direction of the ride. Optimistic investors grew uneasy, took their foot off the gas, then hit the brakes as the horizon darkened with troublesome news about housing and the health of the financial sector.
Most equity indices
were flat or modestly lower in the 1st quarter. The S&P 500 rose 0.2%, the
NASDAQ was up 0.3%, and the DJIA was down 0.9%. Concord’s Focused Growth
portfolio fell about 0.6%, while small cap stocks surprised investors again by
advancing 1.7% on the Russell 2000 Index.
Stock market leadership was as volatile as the market itself. The financial
sector led for half the quarter, then fell sharply as investors’ hopes for a
rate cut dimmed. Likewise, energy had a roller coaster ride with oil prices
swooping to a low of $50/barrel, climbing to the mid 60s, and easing back again
against a backdrop of tensions in Iran.
The best performance
centered on cyclical industries like tires, steel, mining, metals, and
transportation. Traditional growth areas like healthcare, technology and
financials underperformed the cyclical and value-oriented groups. Home builders,
mortgage finance companies, airlines, and auto manufacturers finished last, some
with double-digit losses for the quarter.
For the remainder of the year, we maintain a stable outlook for inflation, Fed
policy, and growth. Oil prices will likely tilt lower with rising production
capacity and slowing growth in demand. While energy has been a cyclical industry
for decades, it should emerge as a sustainable growth industry. Conversely, the
financial sector, a perennial US growth industry, will become more cyclical
since the secular decline in rates is over and banking industry deregulation is
played out.
With consumer confidence still high and corporate balance sheets ripe with cash, several sectors are well positioned to outperform for the remainder of the year – technology, consumer stocks, and healthcare.
We remain optimistic.