The Recovery

The aftermath of the mini-crash in late February was relatively mild. The market meandered for the first half of March and then produced a modest gain over the last two weeks of the month. The S&P 500 gained exactly 1% for March, while the Nasdaq was up 23 basis points and the Dow Jones, up 70 basis points. So while the March market was nothing to get excited about, it could have been much worse, and indeed many thought it would be.

In the wake of the unnerving drop on February 27, it is not surprising that the value style easily outpaced growth in all four market caps. This flight to quality is not necessarily long-term, but it is the norm after such a drop. There was very little difference among market cap performance, with large-caps and small-caps gaining nearly 1%, mid-caps and micro-caps, a little more than .5% -- not much on which to base a prognosis.

This value-based market continues to favor conservatively priced, GARP-like companies with strong, stable cash flow growth and conservative accounting. This is to be expected as well.

All in all, we enter April with more positive underpinnings to the market. We have seen a small lessening of tensions in the Middle East, an easing of fears about interest rate increases, and some calming of nerves with regard to the subprime mortgage market.

Make no mistake, though; the severe February quake was induced by subprime mortgage worries, which are still rumbling beneath the surface. But if this rumbling grows into another quake, it is unlikely to shake financial stocks to the extent that this first tremor did.

David Brown