The bond market has the wind to its back given the fact that the Federal Reserve will probably be reducing rates during the first half of the year. Therefore, we believe bonds and money market funds have a better probability of making money for us at least during the first half of 2001. That said, we are not abandoning our stock market positions. We will continue to maintain well-diversified portfolios in stocks, bonds and cash. We will, however, favor bonds and cash for the next several months where we have the opportunity to do so.
Recessions are usually short lived.
The last recession we had was in 1990. It lasted only a few months, and the stock market has traveled north for the remainder of the decade. More specifically, we would be underweighted in Technology and overweighted in Financials, Utilities, Health Care and Energy. Technology, in spite of the severe correction, still appears to be overvalued, and we believe it will take some time for earnings to catch up with the current prices. Financials and Utilities tend to perform well in a declining interest rate environment.