Monthly Investment Commentary | June 2008

May was a good month for stocks. Domestically, smaller-cap did better than larger-cap and growth did better than value. The large-cap Vanguard 500 Index fund gained 1.3% for the month, while large-cap value (based on the iShares Russell 1000 Value) actually wound up slightly in the red and the iShares Russell 1000 Growth gained 3.6%. The smaller-cap Russell 2000 was up 4.6% in May, with the iShares Russell 2000 Growth gaining 5.7% while the iShares Russell 2000 Value was up 3.4%. For the year to date through May, both larger- and smaller-cap stocks have losses in the low single-digit range (depending on the benchmark), but midcaps have bucked that trend, with slight gains for the year. Foreign stocks performed roughly in line with domestic larger-caps, with the Vanguard Total International Stock Index Fund gaining 1.5% in May. Foreign stocks are down about 2% for the year to date.

Fixed-income results were mixed in May. Domestically, higher-quality, intermediate-term bonds gave up ground, with Vanguard’s Total Bond Market Index fund losing almost 1% (though most of that was made up in the first few days of June). For the year, that fund is up 1% through May. Citigroup’s World Government Bond Index, which tracks developed market foreign government bonds, was down even more in May, with a 1.5% loss. But short-term emerging-market local-currency bonds climbed by 1.7% for the month, bringing their year-to-date gains to almost 8%.

REITs and high-yield bonds, both of which performed well in recent months as the credit crunch showed signs of easing, lost some momentum in May but still showed slight gains. REITs are up about 8% for the year to date, based on Vanguard’s REIT Index fund, while the Merrill Lynch High-Yield Index is up 1.5% for the year through May. Commodity futures, an asset class we sold at the beginning of April, performed well in May, though its 2.7% gain was not at the breakneck pace seen earlier this year. Still, through May commodity futures are up over 16%, with much of the gains coming early in the year.

A Look at What’s Ahead in the Financial Markets

A long-term outlook is key to the investment process at this time. As the price of oil continues its upward climb and the economy struggles equities are continued to be tested. One can look at any point in history and find as many reasons to be bullish as bearish with the stock market. Our clients take great comfort in the fact that our portfolios are well diversified. This diversification is present within equities, fixed income, domestic and international markets.

Monthly unemployment data is expected to remain weak until signs of economic improvement later this year. As the low interest rates make their way through the financial markets the economy is expected to show improvement into 2009.

The bright spot on the economy right now is foreign exports.  This is strengthened by our weakening dollar. On the flip side the weakness in our dollar tends to increase the price of oil.

We expect the financial markets to remain volatile as investors receive news on the price of oil, inflation, housing market struggles and the sluggish economy as a whole.  However, as the economy is expected to strengthen in 2009 we expect to see a market rebound resulting in positive portfolio returns.

We thank you for your patience during these unsettled market times.

—Stapp Financial Planning, PLLC

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