INVESTMENT NEWSLETTER
April 2010

Best 1st Quarter Since 1999

One year after the stock market turned around, the rally continues. After a steep February sell-off, the S&P 500 gained 6.1% in March to end the first quarter up 5.4%. All indices posted gains in the first quarter with the small-cap Russell 2000 in the lead, up 8.5%.

Both the DJIA and the S&P 500 hit 18-month highs in the face of widespread skepticism among investors. Many Americans seem uncertain of the stock market's recovery and gloomy about the economy.

Congratulations to those who have held steady because most individual retail investors have not been fully participating in the stock market rally. According to Morningstar, investors pulled $3.7 billion out of U.S. stock funds in February, the fifth month of outflows in the last six months; and the Wall Street Journal reports that individual investors continue to pour money into bond funds, "even as the Federal Reserve inches forward with its plans to end its unprecedented easing of credit."

Wary investors are not a bad sign for stocks, though. Many stock sellers could turn into buyers if the rally continues. The broad market remains 21% below its all time high in October 2007, and skeptics continue to miss this historic bull run

Recovery Continues

A raft of March reports showed a surprisingly strong rate of expansion in manufacturing around the world, providing clear evidence that a global economic recovery is progressing. S&P 500 earnings were up 96% last quarter, more than analysts predicted, according to Bloomberg. Consumer spending rose to near-normal levels, yet persistent long-term unemployment remains a big problem.

Dollar Strong

The dollar continued to revive in the first quarter and translated to lower international fund returns. The Dow Jones World index, excluding U.S. shares, gained 1.4% in dollar terms for the quarter, compared with a 5.8% gain for the Dow Jones U.S. Total Stock Market index.

Foreign developed market funds continue to lag. Turmoil in Europe and large budget deficits hurt the Euro region putting downward pressure on European stock and bond funds. The euro may be stabilizing, so it will be interesting to see if foreign stock funds can play catch up to their U.S. peers.

Emerging markets were rattled when China took the first steps toward reversing its economic stimulus programs. But many emerging markets funds had a strong month in March.

We do not know how the rest of this year will play out. Clearly, the large debt burden besetting our financial system will take time to work out. But we also know that markets are forward looking and we do not believe in waiting for the problems to end before participating. We do believe in aligning our portfolios with the current market leaders, and being flexible so we can react to changes in leadership.

Thank You for your trust and continued support!

Sincerely,

P. Michael Valley II
Estate Planning Professionals