Second Quarter 2010 Economic and Stock Market Commentary
Stocks turned sharply lower in the second quarter, erasing all of the first quarter’s gains and leaving the large cap benchmark S & P 500 down almost 7% through the first six months of the year. Small company stocks, the Russell 2000, dropped almost 10% during the second quarter; however finished down less than 2% year to date thanks to a strong first quarter. Turning abroad, the story was similarly painful. The international index, EAFE, dropped 14% for the quarter and is down 12.9% year to date. Most of the positive news for the first six months of the year was in fixed income. Barclay’s US Aggregate Bond Index gained 3.49% over the second quarter and is up 5.33% for the year through June.
Investment Outlook
As noted in the performance review above, the first six months of 2010 have been a bit of a rollercoaster – stocks were up early in the year, then down 5% by early February, then up almost 10% for the year by late April, then down over 5% for the year by early June. The S&P 500 ended June down 6.7% for the year.
Our overall market outlook is characterized by concern over the challenges faced by the global economy in the year ahead. In fact, the sharp swings in stock prices this year reflect a sort of tug of war between improving recent fundamentals on one side and serious concerns about debt-related stresses and their potential to derail the fragile recovery on the other. A major issue in the coming years is that the developed world must walk a tight rope as it deals with the pressing need to slow and reverse debt without also seriously harming economic growth. If policymakers get it wrong and go too far on the side of fiscal prudence, they could send the global economy back into a recession. If they err on the side of too much stimulus for too long, the ballooning deficits could lead to high interest rates and inflation.
What does this mean to us as investors? One key to making investment decisions, we believe, is financial planning and purpose-based asset management. Compartmentalizing and managing your money based on time and need helps to provide the structure and discipline necessary for prudent investment decisions during volatile and emotional markets.
We greatly appreciate your confidence and trust and will continue to dedicate ourselves to earning it. If you have any questions, please don’t hesitate to contact us.
Year-To-Date Numbers**
Dow Jones -6.3
Russell 2000 -2.5
S & P 500 -7.6
NASDAQ -7.0
MSCI EAFE -14.7
Aggregate Barclays Bond Index +5.3
**SOURCE: The Wall Street Journal, July 1, 2010
***Investors can not directly invest in indices.
Investment Advisory Group has prepared this text. The views are those of Investment Advisory Group and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.
Securities offered through Multi-Financial Securities Corp.
Investment Advisory Group and Multi-Financial Securities Corp. are not affiliated companies. Member FINRA SIPC.
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