July 1, 2010

Same Music, Different Tune as Stocks Stumble in Q2: Searching for Alpha for July 2010

President Obama's handling of the financial crisis brought about considerable angst among market professionals. The thought of greatly expanded government spending, even in the face of the near-Depression scenario that the United States faced in late 2008, was met with numerous editorials declaring the death of capitalism. More than a few conservatives accused the Democratic President of socialism, warning that the expanded debt burden would result in significant currency devaluation and sustained economic malaise.

Three months later, Mr. Market had made up its mind, rising nearly 65% from its March low.

Fast forward sixteen months. With an economic recovery seemingly in place, most developed nations have decided to embrace fiscal responsibility. And the same experts who warned that increasing public expenditures was an ill-conceived notion are saying the same thing about putting on the brakes.

This type of negative mojo resulted in a double-digit loss for stocks in the second quarter. Considering the reasonable valuations and buoyancy in corporate earnings, it may be as opportune a time to ignore the prognosticators as it was in 2009.

The Monthly Index Report for June 2010

Index

Jun-10

QTD

YTD

Description
S&P 500 Index*

-5.4%

-11.9%

-7.6%

Large-cap stocks
DJIA*

-3.6%

-10.0%

-6.3%

Large-cap stocks
Nasdaq Comp.*

-6.6%

-12.0%

-7.0%

Large-cap tech stocks
Russell 1000 Growth

-5.5%

-11.7%

-7.7%

Large-cap growth stocks
Russell 1000 Value

-5.6%

-11.1%

-5.1%

Large-cap value stocks
Russell 2000 Growth

-6.7%

-9.2%

-2.3%

Small-cap growth stocks
Russell 2000 Value

-8.7%

-10.6%

-1.6%

Small-cap value stocks
EAFE

-1.0%

-14.1%

-12.9%

Europe, Australasia & Far East Index
Lehman Aggregate

1.6%

3.5%

5.3%

U.S. Government Bonds
Lehman High Yield

1.2%

-0.1%

4.5%

High Yield Corporate Bonds
Calyon Financial Barclay Index**

0.0%

0.0%

2.0%

Managed Futures
3-mo. Treasury Bill

0.0%

0.1%

0.1%

All returns are estimates as of June 30, 2010. *Return numbers do not include dividends.

** Returns are estimates as of June 29, 2010.

Ben Warwick is CIO of Memphis-based Sovereign Wealth Management. He can be reached at ben@searchingforalpha.com.

Reprints Discuss this story
This is where the comments go.