Financial Update: First Quarter 2008

Release Date: 06.19.2008

The first quarter of 2008 was a turbulent one: global stock markets took plunges not seen since the tech-stock bust of 2002, while bond markets experienced more of the turmoil and liquidity crises that rocked the latter half of 2007. Crude oil futures reached a record-high $110 per barrel before settling to end the period at $101.58. Consumer-level inflation, as measured by the Consumer Price Index (all urban consumers) rose 1.67 percent during the quarter, with increases in food and fuel overwhelming a notable drop in clothing prices. In efforts to ameliorate the economic slowdown, the Federal Reserve lowered its Federal Funds overnight rate by 200 basis points, ending the period at 2.25 percent — the lowest rate since Feb. 1, 2005.

The stock market afforded few opportunities for higher returns. The Standard & Poor’s 500 Index was down 9.46 percent, its worst quarterly performance since 2002. The broader Dow Jones Wilshire 5000 declined 9.52 percent during the quarter. Large stocks outperformed smaller stocks, though neither posted gains overall (DJW Large Cap, -9.44 percent; DJW US Small Cap, -9.65 percent). Among S&P sectors, only transportation   exhibited positive quarterly performance with a return of 6.48 percent. The next-best sector, capital goods, posted a decline of 3.92 percent in the period. The two worst performers were the finance sector (-14.24 percent) and technology sector (-13.68 percent). Despite the ongoing crisis in residential real estate, publicly traded real estate securities enjoyed a modest rally in the first quarter (DJW Real Estate Securities, + 2.12 percent).   

The 200-basis-point drop in the Federal Funds overnight rate eased volatility in bond markets, though global turmoil fed a flight to quality that benefited only the highest-quality, shortest-duration issues. Yields on two-year U.S. Treasuries fell 145 basis points to 1.62 percent, while yields on 30-year U.S. Treasuries slipped only 17 basis points to 4.29 percent.

Though many analysts predict steady economic growth in offshore markets, the first quarter of 2008 brought worldwide losses in stock markets as investors grappled with America’s economic slowdown and continued difficulties in global financial companies. The weak U.S. dollar improved performance for U.S.-based investors. However foreign producers of goods and services found U.S. consumers less willing to buy their goods as prices rose  — a potential drag on future global earnings.

For the first quarter, the Cleveland Foundation reported a decline of 4.43 percent, vs. a return of 1.85 percent during the same period in 2007.