INVESTMENT NEWSLETTER
July 2010

Mid Year Stall

With 2010 half over , stock investors around the globe are mostly looking at losses. The S&P 500 is down nearly 7% this year, the DJIA -7% and small stocks in the Russell 2000, -3%. Since late April, when the market reached its high for the year, the S&P 500 has lost 14.5%. For the quarter the S&P 500 and the Nasdaq Composite are both down 12% and the DJIA is off 10%.

Last year's optimism seems to have faded, as the jobless recovery weighs heavily on the American psyche, bringing a sense of economic uncertainty that many cannot seem to shake.

The damage during the quarter was widely felt, as housing stocks finished the quarter down 21%, materials off 16%, financials down 14% and both energy and industrials lost 13%. Leveraged funds also registered large losses. We have largely avoided sector and leveraged funds for most of the last year and continue to believe that most investors will fare better in diversified funds, especially in volatile times.

Investors sought the safety of the dollar and U.S. government bonds. Treasuries rose strongly as yields fell further, and gold was among the few bright spots, up 12% in the second quarter. This flight to quality negatively impacted the performance of most risky assets.

We can check off a laundry list of potential worries: the economic crisis in Europe, monetary tightening in the emerging markets, the tragic oil spill in the Gulf, extreme market volatility including the harrowing "flash crash," to name a few.

Keep Your Eye on the Prize

The market correction brought a reversal of this year's trend favoring domestic funds over internationals. Most top performing funds remain domestic, but some international funds had better returns in June. Top performers for June were emerging markets, defensive funds and gold. REITs, health care stocks and utilities were among the most modest losers. The top performers now include more defensive funds that hedge or hold cash.

When news is dire and markets move against us, we tend to forget our long term goals and become preoccupied with short term volatility. Declines in the stock market have scared some investors away from stocks, but realistically, regardless of short-term market direction, if you need to grow your portfolio, you need some allocation to stocks. With cash and Treasury yields so low, most of us simply have to take some risk in order to make our assets grow. It comes down to simple math of how much you need and how must it grow to keep up with living expenses and inflation.

We do not know how the rest of this year will play out. Clearly, the debt burdens besetting our financial system will take years to work out. But we also know that markets are forward looking. History tells us that bad news will continue well into the next significant rally, so we do not believe in waiting for problems with the economy to play out. We do, however, believe in aligning our portfolios with the current market leaders, and being flexible so we can react to changes in those ranks.




Thank You for your trust and continued support!

Sincerely,

P. Michael Valley II
Estate Planning Professionals