Though the previous four quarterly fund statements showed positive returns, with current volatile financial markets and fragile global economies, we could have predicted a down second quarter. Second quarter 2010 fund statements, which should be out by August 15th, will show an overall decline of 6 to 7%.  During the same period, Dow Industrials shed 10% and the broad market S&P 500 dropped almost 12%, illustrating the benefit of our diverse and moderate asset allocation. The old Wall Street adage, “Buy the rumor, sell the news” was certainly evident during the quarter.  First, contagion fears around Europe’s sovereign debt issues and second, softer-than-expected economic results pushed investors into more defensive positions, Treasuries and gold.

On corporate earnings announcements, third quarter 2011 has generally started out positive. However continuing anemic unemployment, housing travails and a cautious consumer will sustain the current uncertainty. Though some recent economic results have been soft, the recovery continues, and there appears little support for a double-dip recession.  Stocks do look attractive for long-term investors, with the S&P 500 trading at a reasonable price/earnings ratio of 12 to 13 versus a historical average around 16. And opportunities may avail themselves in certain equity styles (U.S. large-cap), industry sectors (industrials, consumer and utilities) and consistent dividend paying names. Many economists have trimmed expected economic growth for the remainder of year, yet minimal inflation pressure, continuing accommodative monetary policy and healthy corporate balance sheets could support a year-end rally in equities. 

Perhaps another old Wall Street adage will ring true this year, “Sell in May, return again after Labor Day.”

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