SAN FRANCISCO (Dow Jones) -- Beware the slides of March -- and of February and January.
The past 13 weeks have seemed like 13 lifetimes for mutual-fund investors, with U.S. stock funds falling harder than in any quarter in almost six years. As they surveyed the first-quarter wreckage, shareholders and market strategists alike were well aware that this ongoing credit crisis still has much in store, not the least of which could be the first consumer-led recession since 1990.
Even so, many tried to be hopeful that a combination of federal government intervention and bargain-hunting buyers would put a floor under global markets and allow a complicated and lengthy rebuilding process to begin.
"It's been a very turbulent quarter," said David Herro, manager of the Oakmark International Fund (OAKIX), which lost 11.4% in the period. "But one should focus on grabbing opportunity from turbulence."
Yet it wasn't opportunity knocking investors cold in the first three months of the year. The credit crunch -- punctuated by the Bear Stearns bailout -- tumbling home prices and collapsing consumer confidence routed U.S. stock funds in the period. Only short-selling bear-market funds and gold funds finished in positive territory.
International-stock funds also suffered a sharp blow that ended a long stretch of consistent gains. Investors grew increasingly concerned that the credit crunch would spread globally, particularly to the U.K. and other developed European markets, and that the slowing U.S. economy and an anemic dollar likewise would depress European and Asian exports and industrial growth.
Diversified U.S. stock funds lost 10.6% on average in the quarter through March 28, according to preliminary data from fund-tracker Lipper Inc. World- stock funds, meanwhile, fell 9.8%. China, India and other emerging markets were especially hard hit: diversified emerging-markets funds lost 11.8%; China region funds tumbled 21.2%.
The U.S. decline was the worst three-month return for domestic stocks since a 17% drubbing in the third quarter of 2002. That plunge spelled the end an almost two-year bear market, but nowadays few stock strategists are contrarian -- and brave -- enough to predict that this financial ferocity has passed.
"None of us wants to try to catch a falling knife," said Douglas Peta, market strategist at mutual-fund company J. & W. Seligman. "Anyone who has dipped his toe in the water has just gotten burned because prices have just kept coming down."
"What I have plenty of are questions; what I don't have are answers," added Hugh Johnson, chief investment officer at investment manager Johnson Illington Advisors LLC. "I don't remember a period where I had less confidence in my forecast for the outcome. Some of us pride ourselves as having been around, but the heck with that -- you can throw your experience out the window."
Slip and slide
Anxious stock investors clearly threw out most everything they could in the quarter. U.S. stock funds and exchange-traded funds saw outflows of about $52 billion, according to TrimTabs Investment Research, an exodus that has continued for most of the past year.
There was little to convince them otherwise. A bleak outlook for corporate earnings combined with profit-taking to sack U.S. growth-stock funds, which were last year's standouts. Small-cap growth funds fared worst, down 15.3%; midcap growth portfolios slid 13.4% and large-cap growth funds lost 11.9%.
Value-stock funds held up relatively better, but even these customary safe havens weren't immune from the selling wave.
