Market Update – April 21, 2009

As you have probably noticed, the past month or so has yielded some very positive returns in the markets. We have had better than expected news on many fronts that has helped move the S & P 500 up about 25%. Although high levels of volatility still exist, it is not nearly as volatile as it was in the 4th quarter of 2008. This is the good news. Unfortunately, I still expect to see significant ups and downs for at least the next six months or until we get clarity on the health of the banking system and figure out the impact of bad or underperforming commercial loans. The commercial loan arena is believed to be the next shoe to drop by most experts including myself. I do not expect the commercial loan arena to be as bad as the residential mortgage arena because commercial loans were underwritten with greater scrutiny than residential loans.

My prognosis for 2009 is that the S & P 500 will post a positive yearly return with heavy volatility along the way. I believe that residential and commercial real estate will continue to be a drag on the overall economy with prices drifting lower in both sectors. I still believe that the recession will technically end in 2009 but it won’t feel that way at least until the second quarter of 2010. This prognosis is based on the assumption that the banking system continues to heal and the powers that be make the right decisions.