July 10, 2009
The second quarter of 2009 was the best quarter since 2003; however, many investors are concerned about whether or not corporate earnings from this quarter will support the prices that the stock market has risen to.
Over the past three months, the S&P 500 (large-cap) stock index was up 15.93%, the Russell 2000 (small-cap) index was up 20.69% and the MSCI-EAFE (foreign) stock index was up 25.43% according to Morningstar. While these returns are significant, the year-to-date returns for these indices are only modestly higher. Those who stuck with stocks during the depths of this latest bear market were rewarded; though we have a ways to go to reach the all time stock market highs set several months ago.
The outlook going forward is uncertain. In order for these gains to hold or go higher we will need to: First, see signs that the overall economy is improving. Second, we will need to see corporations meet or beat previously lowered earnings forecasts. If earnings surprise on the downside of these forecasts, you can expect more near-term volatility. Once hope started emerging during this past quarter, investors trounced on inexpensive shares of stock. As I have mentioned in previous quarter-end letters, the stock market typically recovers sooner than the overall economy during recessionary times.
Our fixed income investments have held their own so far this year. My favorite PIMCO funds: Short-term, Low Duration, Total Return and Real Return all posted better than six percent returns so far in 2009. That compares to a 1.78% benchmark return for the Barcap Aggregate Bond Index (formerly known as Lehman Brothers). As we know from last year, these returns are not guaranteed to continue, however.
Looking forward, I cannot help but think that the investing climate is different. More regulation, higher taxes, changes in how consumers spend and save as well as higher inflation will be some of the investment themes that we will hear about in the months and years to come. Overall economic growth may be subdued going forward, but I maintain my confidence that our mutual fund managers will see that we make it through these difficult times.
If you have not stopped in to see us lately, please do not hesitate to contact me to schedule an appointment. Enclosed you will find your Portfolio Performance Summaries, Portfolio Holdings Statement as of June 30, and a quarterly Account Management Fee Statement. Please call us should you desire the most recent copy of our Form ADV, Part II. In addition, do not forget to notify us should your investment objectives or personal financial situation change. Enjoy the rest of your summer!
Best regards,
William A. Bullock