Marketing Commentary- Q3 2006

What’s Been Happening?

The Dow Jones Industrial Index touched it’s all time high in the early days of the fourth quarter. Although a poor benchmark for the overall U.S. stock market, let alone for a global investor, it nevertheless serves as the psychological proxy for the mood of the American investing public. Passing its previous all-time high, which was reached over six years ago, might indicate some sort of watershed. We think not. It is simply another cork of data floating on a sea of noise.

Trends to be Aware of

Large companies seem to have regained leadership as the S&P 500 is outpacing the Russell 2000 Index of small companies in the past quarter and year. Earnings for the S&P 500 Companies are continuing to report double-digit gains. As we have often said, prices follow profits. The S&P notched its best quarterly gain since 1998.

As reported in the San Francisco Chronicle on Oct. 4th, 2006, citing Bloomberg as a source, the rebound has left certain highflying Bay Area tech icons deep in a well of losses. The table below shows how far some companies remain below their all time highs. We think this helps to make the argument for broad diversification.

What To Expect From Here

International Developed and Emerging Markets as well as Real Estate Securities have delivered above average returns in the past three years. At some point it is logical to expect them to under perform as their returns revert to the mean.

Some Numbers for Comparison: The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 9/30/06.

Source:  Thompson Financial