June 2009 Recap

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Following several months in which the market moved steadily higher in anticipation of an economic recovery, the stock market largely traded sideways as investors searched for actual signs of growth rather than second derivative improvement. Still, the S&P 500 managed to push its winning streak to four months and finished June with a quarterly gain of 15.93 percent.

Despite the lack of obvious indicators that the economy is recovering, the VIX index dropped to the lowest level since the Lehman Brothers collapse, which suggests that investor fear has subsided. The VIX index is often used to gauge fear and volatility in the market via the prices investors are willing to pay for protective options. The VIX averaged 20.18 in its history stretching back to the start of 1990, but topped 80 during the height of the financial crisis. Today the VIX is about 25.

All domestic asset classes posted gains led by the utilities, technology, and healthcare sectors. Utilities advanced as the U.S. House of Representatives passed a comprehensive energy policy and helped clear uncertainties surrounding the sector – although it will likely change in the Senate. Technology continued to rise on the expectation that businesses will loosen their purse strings first for technology spending, which enhances efficiency and productivity. Sentiment towards the healthcare sector improved as details about healthcare reform have not implied the draconian consequences as originally thought.

Developed and emerging international markets pulled back after outperforming in recent months – especially in the case of emerging markets. Alternative asset classes also recorded declines in June. The Greenhaven Continuous Commodity Index, which represents a broad range of commodities, fell more than the energy-heavy S&P GSCI Commodity Index. Meanwhile, global REITs managed to squeak out a minor gain and domestic finished the month in the red.

Treasury yields whipsawed during the month of June. Then ten-year reach an intraday high of 4 percent on June 11 as inflation fears really began to envelop the market, but finished the month yielding 3.53 percent. Inflation concerns have subsided, but such volatility can be expected to continue with so many non-traditional factors (Fed buying Treasurys/MBS, Fed Funds at zero) at work in the market.

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Peter J. Lazaroff, Investment Analyst

Cliff J. Reynolds Jr., Investment Analyst