J.L. Davis Market Update 7/6/2010

Quarterly Edition, 2Q 2010

QUOTE OF THE WEEK:
“Challenges are what make life interesting; overcoming them is what makes life meaningful.” - Joshua Marine

THE MARKETS:

Late last week, you should have received our email regarding that the S&P 500 has dropped below its one year moving average, and asking you to call us regarding your account. We are looking forward to chatting.

In the first quarter, investors excitedly climbed a hill. In the second quarter, they were pushed off the other side by three bullies – April, May, and June. After experiencing the best first quarter performance in over 10 years, the second quarter unleashed mayhem as the broad S&P index fell 12%, the Dow dropped 10%, and the Nasdaq slipped 12% amidst the sputtering global recovery. What are some of the factors that have been weighing on the markets? Most of them can be grouped into two main categories:

1. Global TurmoilWhen you look at the whole picture – problems in Europe with the PIIGS (Portugal, Italy, Ireland, Greece, Spain), slowdowns in China and the U.S., geopolitical concerns associated with North Korea and the Middle East – it’s easy to see that the global recovery is under attack.
2. Domestic ConcernsInvestors and analysts alike have worried about the employment situation, housing woes, burgeoning U.S. debt, uncertain legislation affecting financial institutions, weak consumer confidence numbers, and other disturbing indicators threatening the recovery.
   

Whenever we discuss how the economy affects the stock market, it is good to remember that they are not one in the same. Although the condition of the economy often affects the behavior of the markets, the two do not always move in tandem. In recent months though, stock investors have been especially focused on the economy for signals of recovery to guide their investment decisions. The result has been that mixed economic data has undermined confidence in the markets.

So what can we expect in the quarter ahead? Frankly, there is a strong case to be made for the bulls and the bears. Consider just one argument for each side:

BEAR: The S&P 500 is currently down more than 15% from the highs of late April. Going back to World War II, a decline of 15% off the highs has frequently turned a correction into a bear market – a drop of 20% to 30% – according to Standard & Poor's chief investment strategist Sam Stovall.
BULL: Analysts currently expect 2010 earnings to rise 34% from a year ago, the biggest year-over-year growth since Thomson Reuters began tracking the figures in 1998. For 2011, analysts expect year-over-year growth of 17%. The P/E ratio for the S&P 500 is currently 12.3 – significantly better than the five-year trailing average of 14.2, and a strong case for stock investing.

One thing almost all the analysts agree on is that we will see a period of sustained volatility during the months ahead. As an investor, it is wise to assess your own risk tolerance from time to time and make sure you are allocated suitably for your personal investment objectives. If you have questions about how your own portfolio should be positioned for the rest of 2010, please don’t hesitate to contact our office and we will be pleased to review it with you.

Key things to watch this week:
Tuesday – ISM Non-Manufacturing Index
Wednesday – Redbook
Thursday – Consumer Credit, Jobless Claims, BOE Announcement, ECB Announcement

Sources:

Marketwatch

The Wall Street Journal Online

Barrons

CNN Money

http://www.marketwatch.com/story/stock-fund-gains-dissolve-as-2010-turns-perilous-2010-07-02 http://money.cnn.com/2010/06/30/markets/markets_halfyear/index.htm

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

These are the views of Platinum Advisor Marketing Strategies, LLC, not necessarily those of J.L. Davis or Multi Financial Securities Corporation, and should not be construed as investment advice (neither of whom gives tax or legal advice). All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.