Equity investors anxiously awaited the start of the New Year, hoping the intense selling pressure that persisted to the end of the December quarter would abate.  It did not.  By early March, with the market down over 25%, investors had resumed the fetal position.  Finally, relief came.  By the end of March, not only did the market reverse itself but it also rallied over 25%.  There was no clear, single catalyst for the recovery and the market continues to face headwinds, including the release of some negative first quarter corporate earnings and the Byzantine bailout efforts floated from Washington.  Nonetheless, the gloom that has pervaded equity markets since last September has lifted ever so slightly.

Over the past year, our Investment Outlook has focused on interest rate cuts, complex derivatives, volatile commodities, corporate earnings, changing consumer spending habits, bank leverage, and even more obscure topics like auto replacement rates.  We worry that these topics are mind-numbing to most readers.  The stock market usually lends itself to lighter, more colorful analysis.  But, after six straight quarters of negative returns, it would be depressing to repeat the dreary review.  So it is timely that government officials have surfaced front and center to provide new and different material for the media and investment reviews like ours.  “We’re in a government-dependent financial system,” former Fed Chairman Paul Volcker recently said, “I never thought I’d see the day.”  As a result of the increased role played by government officials, two of the key issues investors are focused on today are:

• Will these worldwide, government-led spending programs work and be able to reverse the global economic downturn?

• Will the shift in powers and influence away from Wall Street and corporations help or hinder economic growth?