Our Quarterly Commentary
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Quarterly Investment Commentary

Stocks continued their slide in June, ending the first half of 2010 with losses in every segment of the equity market. The large-cap Vanguard 500 Index lost 11.5% for the quarter, and is down 6.7% year to date. The small-cap iShares Russell 2000 and iShares Russell Midcap both lost 10% in the second quarter, though thanks to a strong first-quarter, both benchmarks are down just 2% year to date. Turning abroad, the story was similarly painful. The Vanguard Total International Stock Index dropped 13.3% in the second quarter, bringing its year-to-date loss to 12%. The Vanguard Emerging Market Stock Index lost over 9% for the quarter and nearly 7% year to date.

Most of the positive news for the first six months of the year was in fixed income. The Vanguard Total Bond Market Index Fund, a proxy for high-quality, intermediate-term bonds, gained 3.6% over the second quarter, and is up 5.3% for the year through June. Foreign bonds were mixed. The Citigroup World Government Bond index was flat in the second quarter, but still down 1% year to date, and although the JPMorgan GBI-EM Global Diversified Index lost 2% for the quarter, it returned a positive 3.4% for the year through June.


Investment Outlook
As noted in the performance review above, the first six months of 2010 have been a bit of a roller coaster—domestic stocks were up early in the year, then down 5% by early February, then up almost 10% for the year by late April, then down nearly 7% for the year by the end of June. This reflects what we see as an economic “tug of war” in the stock market, with improving economic and company fundamentals on the one side, and concerns about debt-related stress points and the longer-term strength of the economic recovery on the other. The tension between these opposing forces has left investors uncertain and the stock markets stuck in a trad-ing range (i.e., bouncing around within a range with no clear trend). We think that unusually high uncertainty could be with us for years to come because the economic challenges we face are serious and will not be re-solved quickly.

Though we won’t forget the market freefall of 2008, now that there has been a strong stock market rebound from the bottom, it’s interesting to compare market levels today to three years ago. Despite the rebound they continue to reflect a level of economic stress:

As long-term investors, our views tend to evolve gradually rather than change suddenly based on new informa-tion. That’s certainly been true in recent quarters with our assessment of the big picture unchanged.
Tarpley & Underwood Financial Advisors, LLC         Second Quarter 2010