The Economic and Investment Environment Newsletter

The following highlights are excerpts from Associated Trust Company's quarterly newsletter: The Economic & Investment Environment, written by noted writer and speaker Sara Walker, CFA. Ms. Walker, a senior vice president and portfolio management team leader with the Milwaukee office of Associated Trust Company, is well known for her in-depth analysis of current market trends and objective outlook for the economy.

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• June is a month known for its celebrations of graduations and weddings. Unfortunately, there were no celebrations on Wall Street. Just as equity investors were beginning to breathe, the stock markets suffered a setback. The Dow Jones Industrial Average declined by -10.04% during the month and -6.85% for the second quarter. The S&P 500 was a bit more generous with a -8.43% return in June and a -2.73% return for the quarter. The NASDAQ composite provided investors with a -9.07% return in June and a +0.82% return for the second quarter.
• It was not any more encouraging on the foreign front. The Morgan Stanley EAFE index of foreign market performance dipped -8.16% in June and -1.93% for the quarter. Additionally, the stock markets in China and India have suffered steep setbacks in 2008 despite continued economic growth.
• Energy equipment and services was the second-best performing industry in June at +14.5% and the best performing industry during the second quarter at +31.1%. The Thrifts and Mortgage industry took top honors for worst performance in both time periods at -20.1% in June and -26.0% for the second quarter.
• Bonds only provided a partial haven for stock investors. The Lehman Government/Credit index of bond market performance was up +0.10% in June. It was down -1.51% in the second quarter. June’s numbers were propped up by a renewed flight to quality, which boosted the performance of government securities while detracting from the performance of corporate securities.
• In addition to this dark picture from Wall Street, gasoline prices moved decisively above $4 per gallon and housing prices plunged at an annualized pace of 23%. Payroll reports highlighted a loss of 62,000 jobs in June and an average monthly job loss of 65,000 in 2008. Against this backdrop, consumer confidence hit a 16-year low as measured by the Conference Board and a 28-year low as measured by the University of Michigan index. These readings were especially disconcerting since they were obtained while income tax rebate checks arrived in the mail.
• Glimmers of light do exist on the horizon. First quarter GDP growth was revised upward to 1.0% and expectations are rising for second quarter GDP growth. Much of this growth is a result of continued strong U.S. export activity. Additionally while job losses are not to be taken lightly, past recessionary levels of job loss have been three times as high as current reports.
• And finally, over the last forty years consumer confidence levels similar to those of today preceded positive stock market returns in the following 12 months an encouraging 96% of the time. The average return was +19%.

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