Special Market Commentary

by Jim Baird on August 5, 2011

Executive Summary

  • The recent market decline, culminating in the sharp selloff yesterday, illustrates the fear that exists related to a range of uncertainties, including the potential for a double-dip recession here in the U.S.
  • Recent economic data have heightened the perceived risk of a recession, but there is also data that supports the potential that the economy may just be in a soft patch and that a double-dip recession should not be considered a foregone conclusion.
  • While the credit crisis that erupted in the fall of 2008 is still fresh in the collective memory of investors, a number of key differences between conditions then and now that could prove supportive this time.
  • Stock market declines of a similar magnitude to the one that we have just experienced are not uncommon, and have happened in nearly 50% of all calendar years since 1971. In fact, most market corrections do not precede a recession.
  • Maintaining a disciplined commitment to one’s investment plan, including the careful consideration of one’s tolerance for risk and investment time horizon, remains a rational approach to navigating sometimes irrational markets.

The markets reacted violently yesterday to further news of a slowing economy, as well as the currency interventions that have recently occurred in Switzerland and Japan. A slowing economy and concerns of a “trade war” of sorts, had many market participants concerned that the U.S. (and global) economy may be headed for another recession, or worse.

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