Aspiriant | Insight April 2010 | Volume XVII No. 1 | The Pendulum Begins to Swing Back...

The Pendulum Begins to Swing Back...

In the first quarter of 2010, the US stock market had its best start in more than a decade, extending the market rally that began in March 2009. With the exception of commodities, all asset classes in Aspiriant managed portfolios had positive returns for the quarter.

Source: Zephyr StyleAdvisor

Source: Zephyr StyleAdvisor

Despite the very positive end result, the “experience” of the first quarter included noticeable periods of discomfort as volatility spiked on mixed news: Greece’s budget/debt crisis and concern about the cost of the controversial health care legislation, followed by stronger corporate profits, improving employment figures, and the continued promise of low interest rates for an “extended period.” The volatility was especially sharp to the downside following the news of Greece’s budget crisis as the S&P 500 lost over 8% of its value in just thirteen trading days. The visceral market response to this event brought back memories of October, 2008, and reminded investors how quickly things can change.

And while the recent volatility may still feel out of the ordinary, like a small after-shock of a major earthquake, the truth is volatility is the norm in capital markets. In fact, going all the way back to 1900, the US equity market (as measured by the DJIA) has been in a correction, bear market or a recession approximately 46% of the time. Even in the best of years, the market has experienced material intra-year retrenchments.

If anything, we might experience more volatility as we move through 2010 and the global economy continues to work through structural imbalances including high unemployment, strained government finances, the potential impact of interest rate hikes, and perhaps most concerning, the eventual exit from global stimulus programs.

Happily, it is becoming evident that the “green shoots” of last summer are beginning to sprout all over the economic landscape this spring, a sign the pendulum of economic growth and recovery is beginning to swing back in a positive direction. There is more optimism than pessimism and the fear of a “double dip” recession has subsided.

The first quarter of 2010 marked the one year anniversary of the market trough, and a comparative look at some key measures of economic activity sheds some light on the reasons for the market’s optimism:


Q1 2009

Q1 2010

S&P 500



GDP - quarterly % change


3.5% (est.)

Jobs for Quarter - quarterly change



Consumer Confidence - level



Unemployment Rate



Source: Zephyr StyleAdvisor, Bureau of Economic Analysis,
Bureau of Labor & Statistics, Wall Street Journal

As the world economy continues to gain momentum, our clients’ portfolios are well positioned to participate in profitable streams of economic activity up and down the value chain – from raw materials to products and services. While we can’t do anything to control the predictable sources of market volatility that lie ahead, we are working on ways to limit the impact of that volatility on client portfolios to improve the “experience” and soften the ride for clients so they can focus on the things that really matter in their lives.

The articles in this quarter’s Insight provide additional perspectives on several issues of the day. Our Chief Investment Officer, Jason Thomas, writes about the highly visible issue of China’s currency management and describes the currency exposure in our clients’ portfolios. This Insight also includes a legislative update on the estate tax repeal, some perspective on REITs’ roller coaster performance, a conversation about Cyber Security, and comments on the tax impacts of health care reform.

Rob Francais
Interim Editor

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