Sizzling Results for Funds in July

Market sectors helping to boost monthly performance for funds were information technology, energy, consumer discretionary, and materials, which all posted strong gains. Positive earnings surprises helped propel stocks across the board, marking the thirteenth straight quarter of double-digit (year-over-year) operating gains for the S&P 500.

“Buoyed by 71% of the 500 issues beating their estimates, the expected 8% earnings gain for the S&P 500 quickly grew to 10.7%, and should reach 12% by the end of period,” says Howard Silverblatt, Market Equity Analyst at Standard & Poor’s. He adds that double-digit gains are expected in the third and fourth quarters of 2005, permitting “companies to feel more comfortable about dedicating resources to operations.” Standard & Poor’s Investment Policy Committee currently forecasts that the S&P 500 Index will close the year at 1270.

During the month, Federal Reserve Chairman Alan Greenspan said he looked forward to sustained economic growth ahead, and stated that the Fed must “continue to remove monetary accommodation,” indicating that measured rate hikes will continue. Greenspan said inflation pressures are expected to remain “contained,” but cited higher oil prices, geopolitical tensions, low long-term rates, and the housing “froth” as risks for the outlook.

Also during the month, Beijing announced it would no longer peg the yuan to the U.S. dollar, an arrangement that had been in place since 1994. China now ties the yuan to a basket of currencies instead. The revaluation is likely to trim the U.S. trade gap with China in the longer term, as the increased cost of imported goods eventually reduces demand. In the short run, however, the U.S. trade gap may actually widen, as the cost of goods will rise more rapidly than the attempt to secure less-expensive substitutes.

Below is a list of the best- and worst-performing domestic equity funds by style category for July 2005.

Domestic Equity Funds* — July 2005 Returns

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