INVESTMENT NEWSLETTER
September 2009

What a difference a Year Makes

Stocks extended the rally that began to resuscitate investors after last year's fast and painful losses. The Dow gained 3.8% in August and the S& P 500, 3.5%. The Dow Jones Global index, excluding the U.S., gained 4.3%.

Last year the U.S. stock market lost nearly 40% of its value in just nine weeks from September through mid-November. Now, after reaching a low last March, the broad market S&P 500 is up 15% year-to-date, a decent annual return. Yet stocks fell so far from their prerecession, October 2007, highs, that despite a 50% rally since March, the S&P 500 index is still missing $4.8 trillion in market value. After six months of gains the index remains down more than 18% for the trailing 12-months.

The economic news has improved. World trade has increased and leading indicators are positive - granted these are heavily influenced by the direction of the stock market. Home prices have edged up although foreclosure rates are climbing, as is real estate held on bank balance sheets that will eventually have to be sold. Productivity has surged partly because of the "benefit" of lower employment costs due to mass layoffs. Inflation is clearly not a problem.

Value funds in all size capitalizations outperformed growth funds last month. Large-caps outperformed small caps and mid-caps did best of all. The weakest style box was small-cap growth.

Among sectors, real estate and financials were the clear leaders last month. Natural resources and energy have been weak, partly because crude oil fetched $115 a barrel a year ago, compared with around $68 at month-end.

Many foreign funds lagged last month. Europe remained strong but Latin America and emerging markets sank along with Pacific region funds.

Top ranked funds are predominantly value funds but some growth funds appear and an interesting mix of both large-cap and small, international and domestic remain.

Where to Now?
After what some see as a six-month buying spree, how much cash is left sitting on the sidelines? Quite a lot and because funds that have done well over the near-term tend to do well in ensuing months, a phenomenon called 'persistence of performance'.

It's only logical that continually aligning with the current top performing funds will help us align with new trends as they develop. Focusing on near-term performance has led us to both productive and unproductive trades in up and down market conditions. But by diversifying and moving incrementally and consistently, this combination of near term performance has led Upgraders to outperform the S&P 500 over the long-term.

If we can be of any further assistance, please do not hesitate to contact us!

Have a safe Memorial Day weekend!

Thank You for your trust and continued support!

Sincerely,

P. Michael Valley II
Estate Planning Professionals