After only a small positive start in January, the equity markets in the U.S. during the first quarter of 2001 continued to slide as investors' worries grew over the very soft economy and a Federal Reserve that may have been too slow to cut interest rates. Many investors are fearful of the economy's falling into a real recession instead of moving through a period of slow growth. In addition, in February and March many companies pre-announced poor earnings for the first quarter and poor visibility for the rest of the year, causing investors to question the belief that the economy might turn around in the second half of this year. Although the economic slowdown is affecting companies across all industries, companies in the manufacturing sector appear to be the hardest hit.
Investors continue to sell the technology sector and other higher growth segments of the markets.
This was especially true of small cap technology issues. Even the more defensive sectors such as energy and healthcare were weak at the end of the quarter. As equity prices weakened during the quarter, we were trying to reposition the portfolio into the highest quality companies that offer growth opportunities at reasonable valuations. In many instances stock prices of quality companies appear to be discounting all the bad news and more. In this environment we are adding to what we believe are better longer-term growth opportunities.