Marketing Commentary- Q1 2007

What’s Been Happening?

Stock markets cooled at the midpoint of the past quarter amidst world financial turmoil from stock market corrections in China to subprime mortgage worries in the United States . Once again patience, and not itchy trigger fingers, paid off as those asset classes that sold off so sharply in late February roared back by the end of the quarter. Over the last few years, volatility in the US Stock Market has been well below its historical norm so this recent turmoil may have felt more severe than it actually was.

Trends to be Aware of

Many of our clients have been concerned about the strength of the US economy for some time. This is not surprising given the constant stream of negative news reported by our mainstream media. We understand that positive “puff” pieces don’t attract as large an audience as a good old-fashioned crisis. Unfortunately, we feel more balanced reports might allay some of these concerns.

We are not surprised that the economy has steamed along despite the consistently high energy prices of the past few years and the more recent sagging housing market. Nearly two years ago there was concern that Hurricane Katrina was going to abruptly derail the economic expansion of this decade. Before that, the tech bubble implosion was expected to cause a severe economic contraction.

In a commentary printed in the Wall Street Journal on February 14th, Brian Wesbury, chief economist of First Trust Advisors, counters the current sentiment:

“It’s the best of times. It’s the scariest of times. Last year, U.S. exports, industrial production, real hourly compensation, corporate profits, federal tax revenues, retail sales, GDP, productivity, the number of people with jobs, the number of students in college, airline passenger traffic and the Dow Jones Industrial Average all hit record levels. For the third consecutive year, global growth was strong, continuing to lift (and hold) millions of people out of poverty. From 30,000 feet, heck from 1,000 feet, it sure looks like the best of times.”

What To Expect From Here

We do not hold Pollyanna notions that the current expansion will not end at some point. But, expect the media pundits [many of whom are not qualified to comment on economic matters] to continue to hype every major event as the straw that will break the US economy’s back. These prematurely written obituaries shouldn’t keep us from savoring the progress of our diversified approach.

Some Numbers for Comparison:

The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 3/31/2007.

Source:  Thompson Financial