April 11, 1997
The first quarter of 1997 was a warter of volatility as anticipated. The net effect for both the stock and bond markets was relatively flat-to-negative investment returns. The S&P 500 Index of large-cap stocks was up 2.21%, the Russell 2000 Index of small-cap stocks was down 5.53% and teh Lehman Brothers U.S. Treasury Composite Bond Index was down 0.90% for the quarter. An interesting statistic is the average mutual fund investing in diversified U.S. stocks returned a negative 1.98% in teh first quarter.
Although it is always difficult to predict the stock and bond markets, it seems to make sense to be cautious after such an extended perioud of strong performance prior to this last quarter. The key going forward will be the economy. Corporate earnings continue to be strong and interest rates are relatively low but have begun to move upward in light of the continued strong economy. Some additional thoughts include:
The Federal Reserve recently step forward with a modest one-quarter point increase in the FED funds rate as inital effort to cool the economy and control inflation. Such rate increasese have rarely stood alone, but most often are folllowed by additional rate increases. This could create additional downward pressure on both the stock and bond markets.
Overseas equity markets, expecially developed markets, continue to appear to be a good value and may be a good hedge relative to the U.S. market.
Minor changes have been made r will be made in portfolios to reflect the above conditions and economic forecast as of March 31st adn quarterly Account Management Fee Statement.
If you desire additional information on internal rate of return, time weighted rate of return or Morningstar reports on any mutual fund in your portfolio, please let Bill or I know. Please call us with with any questions or to advise us if your investment objectives have changed
Allan C. Topp, CPA
President