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Are These the Beginnings of a New Bull Market...

For Immediate Release
June 12, 2003

Media Contact: Will Casserly
wcasserly@ricedelman.com
(703) 251-0110

Well, guess what?

Over the past seven months, from October 9th through May 9th, the Dow Jones Industrial Average* jumped 18.1%. If it sustains that pace for another five months, the Dow will be up 31% for that 12-month period. The S&P 500 Stock Index* is similar: It's up 20.1% since October 9th, an annualized return of 34.4%. And remember the NASDAQ, the home of Internet, telecom and technology stocks? It's up 36.4% since October 9th, a whopping annualized rate of return of 62.5%. (All data according to The Wall Street Journal.)

So, if you're thinking that the stock market is in the doldrums, you haven't been paying attention. The truth is that the stock market has been turning around, and it's looking much better than it has at any time in the past three years.

And your investments have been sharing in this improved performance, but it's hard to notice because your statements don't clearly reflect the "since October 9th" results. After all, October 9th is a rather artificial starting point. Why, then, do I refer to it? Because that is the date of the stock market's low ? it's been higher ever since. It's interesting to note that we were able to identify October 9th as the low only long after we passed that date. Indeed, it was impossible to say, on October 10th, that a low had been reached the day before. Only now ? seven months later ? are we able to see more clearly.

This also explains why nobody knew that March 23, 2000, was to be the stock market's high. Only months later ? after prices fell ? were we able to acknowledge that the market had peaked on that date

This is why market-timing is so difficult, if not downright impossible. You can't determine where you are until you leave that point and look backward at it ? and looking backward provides little if any guide to where you're going. That's why we never engage in that dangerous practice, and why we encourage you to avoid it, too.

So, the big question now is this: Is this merely a rally, or is the performance of the past seven months the beginning of a new bull market?

The answer remains unclear. For example, the Federal Reserve Board has announced that it is worried that we may experience deflation. If that happens, stock prices could fall, which would be bad. But deflation could cause interest rates to fall farther, which would be good.

Our conclusion from what's been happening? Simple: This is no time to make a big bet either way. Instead, maintain a highly diversified portfolio, and continue to add to it on a regular basis.