3rd Quarter 2001 Newsletter

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Unfortunately, this quarter it seemed that no matter where you looked, the news was bad. Reduced corporate profits, employee layoffs, declining confidence and the terrorist attacks of September 11th on New York and Washington all contributed to one of the worst quarters in stock market history.

During the third quarter of 2001, the market value of U.S. stocks fell slightly more than $2 trillion, or 16.17%. Since it’s high on March 24, 2000, the U.S. stock market (as measured by the Wilshire 5000 Index) has declined by more than $6 trillion. Over the past three months, the Dow Jones Industrial Average, Wilshire 5000 and the S&P500 all suffered their heaviest losses since the market crash in the fourth quarter of 1987, when the market dropped 22% in a single day and ended the quarter down 25.3%. The NASDAQ, spurned by many former advocates of the “New Economy”, absorbed the steepest decline, falling 30.7% over the quarter, and is down 70% from its record high in March 2000.1

Fortunately, despite the glut of negative news, investors did not panic. Today’s investor is better informed, more knowledgeable and steadfast to their investment disciplines. Stock positions were largely maintained, with equity mutual fund redemptions recorded at a mere six-tenths of one percent over the three-month period ending September 30th.2

If history repeats itself, this perseverance may well be rewarded. Over the past 200 years, the U.S. stock market has endured only eight back-to-back losing years, according to data from Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School. Following these back-to-back losing years, the market rose an average of 18.8% the next year, and outpaced inflation by an average of 8.5 % per year over the next five years3.

It is uncertain when the market will recover, but for investors who have stayed the course, we do not believe this is the time to abandon your strategy. The Federal Reserve has never been more friendly toward investors; the government is seeking ways to pour money into the economy; and the feeling of nationalism that is being portrayed throughout the country has never been more evident.

Endnotes:
1 Source: Wall Street Journal, October 1, 2001
2 Source: Wall Street Journal, October 1, 2001
3 Source: Wall Street Journal, September 26, 2001
Past performance is no guarantee of future results.

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