4th Quarter 2009 Investment Commentary

The stock market climbed back from the sharp declines of 2008 and early 2009 to finish the year with strong overall gains. The S&P 500 was up 26.5% for the year and the DOW 22.7%. Riskier sectors of the market did even better with technology up 43.9% (NASDAQ), smaller U.S. companies up 34.4% (Russell 2500), and emerging markets up 79.0% (MSCI-EM).

2009 began with investor confidence shattered by turmoil in the financial sector, a deepening recession, and a cascading credit crisis. The tide began turning in March as the financial sector and economy stabilized in part due to massive government monetary and fiscal stimulus. Stocks rallied for the rest of the year even though unemployment, the real estate sector, and consumer spending continued to be concerns.

Fixed income investments also rebounded in 2009. As the financial system stabilized and credit markets thawed, quality issues became much less volatile and riskier bonds rose dramatically (BarCap US High Yield up 58.2%).

The economic outlook is significantly better now than it was a year ago. Serious problems still remain, but the weakest sectors are no longer getting worse, while the stronger areas are getting better. These trends should continue resulting in modest GDP growth of 2.0% - 2.5% in 2010. The biggest problem for investors is that equities have already soared 60% or more from the lows of early 2009. At these levels much of the recovery is already priced in and any disappointments along the way could lead to renewed market volatility.