Stocks Finish Quarter Bruised Despite Big Rally in March

By Tomoeh Murakami Tse
Washington Post Staff Writer
Wednesday, April 1, 2009

NEW YORK, March 31 -- U.S. stocks finished the quarter down nearly 12 percent despite a March rally in which investors shrugged off glum economic news.

On the final trading day of the quarter Tuesday, the Standard & Poor's 500-stock index climbed 10.34 points, or 1.3 percent, to 797.87. It was down 11.7 percent for the first three months of the year, the sixth consecutive quarterly decline. The index last fell six consecutive quarters in the period that ended in the second quarter of 1970, according to Howard Silverblatt, senior index analyst at S&P.

Only one sector in the S&P -- information technology -- finished the quarter with a gain, rising 4 percent. Financials, which led the March rally along with tech and materials stocks, was the worst performer, falling 29 percent for the quarter.

The Dow Jones industrial average gained 1.2 percent Tuesday despite negative reports about the housing sector and consumer confidence. The Dow, composed of 30 blue-chip stocks, rose 86.90 points to close at 7608.92. It was down 13.3 percent for the quarter. The tech-heavy Nasdaq composite index rose 26.79 points, or 1.8 percent, to 1528.59. It fell 3.1 percent for the quarter.

The modest gains Tuesday were part of a rally that began after stocks hit 12-year lows March 9. For the month, the S&P rose 8.5 percent, the best monthly gain since March 2000, the height of the tech bubble.

Bullish analysts see the recent gains as evidence that markets have hit bottom, noting that the economy has shown signs of stabilization. Others, however, think the surge will prove temporary, saying that nothing has fundamentally changed -- the toxic assets on banks' balance sheets are still there, job losses are mounting and home prices continue to fall.

A report released Tuesday morning showed that U.S. home prices dropped by the steepest annual rate on record. In the 20 cities that make up the S&P/Case-Shiller index, prices fell by 19 percent in January compared to January of last year, the biggest decline since the index started in 2000. The Sunbelt continued to be the worst hit, while home prices in the Washington area declined by about 19 percent.

Also Tuesday, a monthly survey showed consumer confidence was essentially flat from a record low in February. The consumer confidence index inched up to 26 in March from 25.3 in the previous month, according to the Conference Board.

"To me, nothing really has changed . . . we haven't found the solution, yet," said Axel G. Merk, portfolio manager of the Merk Hard Currency Fund, who noted that traders covering their short positions -- bets that stocks would fall -- are at least in part causing the rally. "I'm very happy staying on the sidelines."

Stanley A. Nabi of Silvercrest Asset Management Group, is cautiously optimistic. The financial sector, which many think needs to recover before others can follow, has rallied recently, with shares of J.P. Morgan Chase, Bank of America and Citigroup up sharply. All three banks recently said they made money in the first two months of the year.

Nabi also said credit markets were starting to defrost, with some large deals struck during the quarter. The drugmaker Pfizer, for example, said it would acquire rival Wyeth in a $68 billion deal, the largest deal of the quarter.

"As [March] unfolded, Washington has signaled . . . that it believes it cannot allow a major financial institution to fail," Nabi continued. "[Federal Reserve Chairman Ben S.] Bernanke said it, [Treasury Secretary Timothy F.] Geithner said it, the president has said it. This in itself has provided support for stocks. As a matter of fact, you can see the most compromised bank stocks start to recover. . . . Whether this is going to indicate a rapid recovery is still to be seen."

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