Protect...Grow...Repeat

Market & Economic Brief

Summer 2010

GLOBAL STOCKS
Stocks generally ended the first half of 2010 under pressure. The S&P 500 was down -7.5% and the MSCI Developed Country index declined -15.8%. Q2 earnings reports are expected to be strong but forward guidance is less certain. Leading companies held up surprisingly well as markets sold off.

WORLD ECONOMY
Leading economic leading indicators produced by ECRI continue to signal a slowdown in the U.S. economy but will need to deteriorate further before signaling another recession.

INFLATION DATA
Broad inflation pressure appears to be contained and interest rates remain very low.

U.S. RESIDENTIAL HOUSING
After a pick-up earlier in the year, home sales appear to have slowed after the expiration of the home buyer credit at the end of April in most U.S. markets.

PLANNING
New conversion rules for ROTH IRA's in 2010 may present a unique planning opportunity.

Potential tax changes in 2011 are reason to review tax strategy in 2010.

Our Market & Economic Outlook

Most economic and market data is historical in nature which offers limited value in terms of making investment decisions, especially when transitioning from the asset accumulation to the asset distribution phase of life. Fortunately, there are some indicators that have a historical record of signaling turns in economic conditions. At Dightman Capital, we attempt to blend historical and forward looking indicators to formulate our investment viewpoint.

U.S. Equities The stock market trend can usually be characterised as advancing, declining or moving sideways. Additional detail on the strength, magnitude and length of time for the trend helps determine the current state of U.S. stocks. A change in the direction of stocks prices usually do not correlate with changes in economic conditions. Generally stock market prices lead economic changes. Once the stock market character has changed, we would expect leading economic indicators to supporting or help explain the change.

U.S. Economic Growth
The intention is to signal business cycle peaks and troughs in advance or early in the change.

U.S. Inflation
The intention is to signal turns in the inflation cycle in advance or early in the change.

U.S. Residential Housing
The intention is to signal turns in the residential housing market in advance or early the change.

The Market & Economic Outlook is not presented as a reason to make changes to our portfolios. More often it is used as a reason not to take action. Stocks spend the majority of their time moving up. However, there may be conditions that warrant a more careful approach to making new investments as well as changes to the composition of exiting investment allocations, depending on the strategy being deployed.

Sources
Dightman Capital uses a variety of information sources when assessing market and economic conditions but the primary sources for the outlook on our website are:

For U.S. Equities http://www.investors.com/

For Economic Growth, Inflation, & Residential Housing http://www.businesscycle.com/