September 2009

Cautiously Optimistic

The S&P 500 ended an impressive third quarter with a gain of 15.60% and combined with the second quarter's 15.94% the largest six month gain since 1975. For the full year it is now at positive 20.53%; please see our results which are posted on the performance page. The market benefited from multiple expansion and a flight from low yielding money market funds in its strong ascent from the March 9th lows, and while the going might get tougher and more volatile from here, the evidence still suggests that we are in the first wave of a cyclical bull market. Here are some thoughts:

• A Fed that is on hold, with low inflation and moderate growth has generally been positive for equity and fixed income investments.
• Emerging markets look stretched on a short term basis, but given their increased capital expenditures (big positive for commodities) vs. developed countries, I remain confident in their long term out performance.
• From a technical standpoint (Lowry), the market is showing no signs of serious deterioration. It generally takes four to six months of distribution before any serious correction takes place.

I'm taking a cautiously optimistic outlook to the market, and continue to believe that we are well positioned to meet our investment objectives.

-Joe