Unusual - Not Unique Feb. 27 market decline not unique from historical perspective Russell Investment Group March 2007 The Tuesday, Feb. 27 decline in global equity values, while seemingly dramatic, was not that unusual, according to Ernie Ankrim, Russell's chief investment strategist, and Stephen Wood, senior portfolio strategist. The across-the-board sell-off saw major global indexes fall anywhere from 2.3 percent in the United Kingdom to 8.8 percent in China. In the United States, the broad-market Russell 3000® Index dropped 3.44 percent, and the small-cap Russell 2000, 3.75 percent. Historical perspective In an in-depth analysis of Tuesday's events, Ankrim said investors have come to expect about four of these market events every three years. For instance, in July 2002, according to the S&P 500, there were three days when the market lost more than three percent. "So Tuesday's sell-off was not unique, but it was unusual," Ankrim said. In addition to affecting markets worldwide, the decline affected all dimensions of equity - across asset class, sectors and managers. This underscores the significance of a diversified portfolio, Wood noted. "Since we can't foretell the future, it's important to diversify," he said. Putting the day's activity in historical perspective, Ankrim noted that in the past 30 years, there were 41 days that had one-day losses of over three percent, measured by the S&P 500. Of those 41 days, Tuesday's 3.47 percent loss represented the market's 24th worst day. The worst day was Oct. 19, 1987, with a 20.5 percent loss. Moreover, Ankrim said, in the 130 trading days following the 24 worst days, or about six months, the average return was 10.4 percent. And in 20 of the 24 instances, indexes improved to pre-sell-off highs in about six months. Sell-off began in China According to Wood, the spark that ignited the sell-off began in China, with investors concerned that the Chinese government would attempt to cool the country's inflationary economy. The sell-off in China was overdue, Wood said. The combination of the stimulus of selling in China, comments over the weekend by former Federal Reserve Board Chairman Alan Greenspan that left open the possibility of recession, and negative durable goods indicators compounded to create greater impact than was representative of market conditions, Ankrim said. 2007 forecasts unchanged Both of Russell's leading economists said that despite the one-day volatility, they remain confident in their positive forecasts for equity markets in 2007. While cautioning that past performance is not an indicator of future results, "Patience may be rewarded," Ankrim said. "My opinion is that avoiding a knee-jerk reaction will likely pay off in the long run and that 130 days from now, we should find that the equity markets have treated us fairly well." Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. Indexes are unmanaged and cannot be invested in directly. Returns represent past performance, and are not a guarantee of future performance, and are not indicative of any specific investment. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide and is a subsidiary of The Northwestern Mutual Life Insurance Company. Copyright© Russell Investment Group 2007. All rights reserved. RC 4596			Expert INSIGHTS Read more Russell market analysis.   The Power of RUSSELL AND YOU Learn more about Russell's investment approach.   Investment PRODUCTS LifePoints Funds Russell Funds Separate Accounts Institutional Funds   Printer friendly version of this page Send feedback or comments Site Search

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