Economic Outlook

Economy Remains Weak Near Term, But Worst May Be Past

What’s the current state of the economy?

The U.S. economy appears to have again contracted materially in the first quarter of 2009. Unemployment rose. Weak housing prices and job concerns continued to frighten consumers from committing to new homes or other spending. Credit contracted as well, with bankers becoming more selective with their lending decisions to both consumers and businesses. These factors are continuing and will likely dampen economic activity for some time

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Equity Portfolios

Opportunities Exist, But Defensive Stance Remains

The negative tone of the markets continued in the first quarter. Could you comment?

Even after a strong rebound from their early March lows, the market prices of equities as measured by the S&P 500 and many other widely followed market indexes continued to erode during the first quarter.

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Fixed Income Portfolios

Volatility Still A Hallmark Of The Bond Market

In the last edition of Capital Markets Review you mentioned there were some preliminary yet positive signs in the bond market that may reflect an improving economy. Did those signs continue?

During the fourth quarter of 2008 and earlier in the first quarter of 2009, there was a flight to safety in which investors seemed to have an extreme aversion to risk. This created great demand for U.S. Treasury securities and a lack of demand for even the highest-quality corporate and municipal bonds. Prices of U.S. Treasury securities moved higher and yields lower while the opposite was the case for corporate and municipal bonds (prices and yields of bonds move in opposite directions). This resulted in an unusually wide disparity between the yields on U.S. Treasury securities and other bonds.

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