July 13 Update

Hello everyone,

Companies are beginning to report their earnings for the second quarter. Thus far, the companies that have reported are demonstrating their resilience to the economic slowdown in Europe. Although profit margins continue to impress many executives acknowledge that the uncertainty in Europe does have an effect on their forward earnings guidance. Some highlights from the early reports include: Alcoa, J.P. Morgan, and Wells Fargo all beating their average analyst expectations. Alcoa beat their earnings projections due to carmakers buying more aluminum than was predicted. At J.P. Morgan, CEO Jamie Dimon stated that he still expects the company to post record earnings this year, even after the company had $4.4 billion in trading losses from May. The first few major earnings announcements were positive, showing that corporate earnings are still very strong here in the U.S. We will continue to monitor earnings and will send out relevant information.

The U.S. economic data has been a source of concern over the past few months. However, we feel the U.S. economy is stabilizing and that the Federal Reserve will act as needed to make sure monetary policy continues to be geared toward growth. Inflation remains in check and the Fed will keep their focus on job creation which should continue to provide support for financial markets throughout the year. The article below discusses the recovery in home prices in the U.S. As the excess inventory of homes is sold off and distressed sales diminish, the construction industry should see a rebound which would be very helpful for our economy. Interest rates remain at record lows and should provide support for a continued recovery in real estate.

Meanwhile, confidence continues to lag and remains a critical problem for the global economy. We are hopeful that better news could come in the near term in the form of further action to capitalize European banks, solid U.S. earnings reports and some cooperation in Congress to get a bill passed to extend the Bush tax cuts. All of these steps could improve consumer and business confidence later in the year.

U.S. stock valuations are attractive and we will continue to look for opportunities that have been created due to the volatility over the past few months that is attributable to all of the macroeconomic fears.

Have a good weekend,

Jim