We all have certain expectations and so does the market place. As each year progresses, expectations arise about the future inflation rate, the growth of the economy, consumer spending, and other such areas of interest. Based on these expectations, investors make decisions about what investments they want, when, and how. As real results come in, the expectation is compared to the result. Generally, if the result meets or exceeds expectations the response is good. If the result falls short of the expectation, the response is not good. Last week, a report was released showing that consumer spending, a key ingredient in moving the economy, did not meet expectations and the market dropped. The market moved lower due to fear that consumers had curtailed their overall discretionary spending for everything except automobiles. This week, a report was released indicating that consumer prices were rising and exceeding expectations, moving the market up. The market rose because higher prices are apparently taking hold, thus increasing the possibility of added profits for companies. Currently, we are at the end of a quarter, with a half year behind us and a half year to go. Earnings from various companies are very important to the market at this time as analysts attempt to figure out what will happen for the balance of the year. We closed the second quarter with both stocks and bonds down for the month of June. As of this writing, stocks have staged a dramatic recovery and bonds are moving into positive territory. This is all good news, but the markets are very susceptible to wide fluctuations, and earnings reports will continue to come in between now and early August. At this time, the economy appears to be growing stronger, the Federal Reserve will reduce purchases on bonds, and the U.S. deficit for the current fiscal year, which ends on September 31, will be substantially lower than expected. This is good news for the U.S. economy and the stock market. We as investors need to remember that short term shifts in investments will occur, and we must be patient and look at the long term. To me, the long term looks extremely good.
Ed Mallon
