March 2006

[Note: What the Market Wants for this month is based on Sabrient's filter backtesting results for last month.]

For the most part February was an unpleasant month for the market, with only a few pockets of positive returns, namely the Dow itself and the Russell 1000 Value and Mid-cap Value. The S&P 500 was up 5 basis points, which hardly counts as being up, while the Nasdaq was down more than 100 basis points and Russell Mid-cap Growth was down 134 basis points.

It is difficult to draw many conclusions from such a mixed month. However, large caps were definitely a better place to be than mid caps or small caps. But that's only a one-month snapshot; all metrics looking back over three, six and 12 months continue to favor small-cap issues.

With regard to styles, Value led only in the large-cap sector in January, but now it is the leading style in all caps. This may be an indication that the market could be rotating toward Value, although Growth continues to be the favored style looking back six months or a year. It will take at least another month to draw a definitive conclusion.

Finding specific attributes that the February market favored was a challenge. However, issues with the following attributes generated mildly positive returns: Lower price-to-earnings, price-to-sales and price-to-book ratios, regardless of cap, and -- as has been the case for many months -- growth at a reasonable price (GARP). In smaller companies, earnings growth momentum was rewarded at times but not consistently.

There wasn't much else that the market consistently rewarded during the past dismal month. Hopefully, a clearer picture will emerge this month.

The market behavior will be reviewed again the second week of April 2006.