INVESTMENT NEWSLETTER
May 2009

Investors See Through Gloom

April was far from the cruelest month. In fact, it was so good all around that many indices enjoyed their best month in years: 7.4% for the Dow, 9.4% for the S&P 500, 12.4% for the Nasdaq, and 15.3% for the
Russell 2000.

There was welcome evidence that confidence is returning globally. Both stocks and high-yield bonds surged here and abroad. The Dow Jones World Index jumped 12%, its largest monthly gain since it began in 1991.

All indices staged striking rebounds from recent lows reached on March 9, and the S&P 500 is up almost 30% from that date. But remember that markets don't move in a straight line. And, while market action is encouraging, some expect another test of recent lows before the bottoming process is complete. From the fundamental side, a larger-than-expected plunge in first quarter GDP capped the worst two-quarter performance in more than half a century - serving as a reminder of just how weak
the economy remains. Company profits are down 35% from a year ago.

Yet the stock market refused to sink in recent weeks. Resilience in the face of bad news may mean there is something positive in the stock market that we cannot yet see. As we've been reminding ourselves for months, markets turn before we see the reason for it - further confirmation of a basic Upgrading tenet: it is far safer to follow the market than to predict it.

What's Working
Domestically, the previously hardest hit real estate funds led last month, followed by the equally decimated financials- those same companies that led the way down. Small- and mid-cap funds outperformed large-cap funds in April. Value funds as a group outperformed growth funds, although technology and communications funds continued strong and are by far the best performing sectors year-to-date.

Foreign funds outpaced their U.S. counterparts last month, aided by a weakening dollar. Amidst the recent resurgence of risk appetite, the U.S. dollar shed some of its previous safehaven allure. Latin America and emerging markets were the strongest areas overseas. Diversified emerging market funds gained 15% on average, although Europe was not far behind.

Move Incrementally
Many question the legitimacy of the recent rally. We do not know if the market bottom is past. We do know that stock market volatility is a fact of life. Markets move unpredictably, and most short-term price movement is nothing more than noise. Long-term price movements however, can constitute a trend.
Upgrading portfolios are continually changing reflections of current market leadership. In the late 90's our portfolios were mostly overweight in large-cap growth stocks. But from mid 2000 to 2003 our exposure shifted as leadership changed to favor smallcap and value style investing.

Next, internationals dominated our portfolios for several years, and then shifted back to larger cap domestic growth funds. Granted, there was no good place to be during the extreme sell-off of the past 18
months, but this too shall end.

Please call if you feel a need to discuss your situation in great detail!

Thank You for your trust and continued support!

Sincerely,

P. Michael Valley II
Estate Planning Professionals