Market Update
July 1, 2010
Second Quarter 2010 in Review
The quarter ended on a down note with stock prices
declining along with consumer confidence. The
misgivings we had voiced in our last newsletter, "...our
stock indicators are not favorable..." were realized as
the broad S&P 500 stock index declined 11.41 percent
for the quarter. In this environment, with double digit
losses in stock indices, the conservative posture that
we had recommended was appropriate. Additionally,
we extended the maturities of your bonds, which offered
a good way to offset stock declines.
More and more polls suggest that investors are coming to
believe that the impact of the large US stimulus was
temporary. US bonds became especially attractive as it
became clearer that a strong economic recovery was not
in sight. Also, investors sought a refuge when foreign
countries such as Greece and Spain began to attract
attention due to their massive debts. The United States is
hardly free of excessive debt, however, the greater size of
our economy and our entrepreneurial culture encourages
investors.
Increases in appliances, homes, and auto sales
encouraged manufacturing activity for a time, but the
impact is fading. Fewer workers were added by firms than
forecasted, and the length of the average work week
declined. A decrease in average hourly earnings leads to
the suggestion that consumer spending could be impacted.
Market Outlook
We believe that a lower equity position, focused more on
domestic than international investments, with a strong
position in the highest quality bonds, is the best place to
be currently. Your portfolio is structured so that we can
quickly raise cash or purchase securities to take
advantage of market fluctuations.
Some economists argue that monetary authorities should
be increasing interest rates. Some take the position that
foreigners need to stimulate their economies to a greater
degree. Our research suggests the economy would
benefit from less uncertainty for small business owners
who generate most of the jobs.
At this point, we believe a continued conservative
investment posture is best. Volatility and market swings
generate good buying points. We look for strong profit
opportunities in the months ahead.
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