A RECOVERY WITH RISKS

“The essence of investment management is the management of RISKS, not the management of RETURNS.  Well-managed portfolios start with this precept.”

Benjamin Graham, The Intelligent Investor

Recent data continues to suggest that the U.S. Economy is in a gradual recovery.  Economic growth appears positive but far from strong. Some data suggest the economic activity could again slow down in the second half of this year.

Since October, equity markets, gold prices and bond yields have moved higher. Signs of growing inflationary pressures are still not widely evident, but rising yields certainly point out that investors are demanding higher interest rates on longer maturity bonds.  The Fed has stated that they are going to keep short term rates low (almost zero) for an extended time period.

The rebound in U.S. equities last year was primarily driven by four factors: 1) Investor expectations and then more evidence that economic activity was improving; 2) Expectations of strong corporate earnings growth in 2H09 and in 2010 that have continued to build following strong 3Q09 earnings reports and favorable trends continuing in 4Q09; 3) Fed monetary  policy that has provided very cheap short-term money and ample financial support to the U.S. financial system; and 4) Clear evidence that the U.S. banking system and world financial markets are not going to collapse despite some continuing problems in credit markets.

As we start a new year and new decade, all the positives mentioned above are still in place but the challenges ahead are many.  As such, we find ourselves cautiously optimistic, cautious in the short term and more optimistic in the longer term.

Weekly updates on market and economic conditions are available in the Financial Analysis section of our local website at www.RaymondJamesOhio.com.

Please call if you have any questions regarding this general market commentary.

Sincerely,

Larry Cavalena
Registered Principal

 

Opinions expressed here are not necessarily those of Raymond James Financial Services or any of Raymond James
affiliates.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.  Past performance is not a guarantee of future results.  Investing involves risk and investors may incur a profit or a loss.