Archive for July, 2006

Mid-year Review and Outlook

Wednesday, July 5th, 2006

We said the following things on December 30, 2005.

  • Federal Funds Target Rate will go to at least 4.75%
    This was a chicken forecast, but we did get it right. With the funds rate at 5.25%, we expect another hike to 5.50%. If the Fed gets spooked about inflation, 6.00% is a possibility.
  • We expect stocks to return 2.50% for the first half… and 6.60% for 2006
    With regard to our standard benchmark for stocks, the S & P 500, we couldn’t have called this one better: in the first half, the index returned 2.71%. We stand by our 6.60% full-year forecast.
  • [In stocks]… emphasis on energy and materials sectors
    We got this one half right. The energy sector has been the best performing sector so far this year. Of ten sectors, materials was the fifth best. For the rest of the year, we still favor energy and materials.
  • [In stocks] healthcare sector… should perform well
    We completely missed with this one. This traditionally-defensive group has performed badly, coming in eighth out of ten sectors. Even in the turmoil of the past several weeks, the sector has not done well. Still, history is on our side based on the Presidential and Fed tightening cycles, and we stick with the call for the second half of the year.
  • Peak in long-term interest rates in 2006… could be a decent year for bonds
    Unless the recent high of a 5.25% yield on the ten-year treasury is the peak, we could be wrong on these two calls, but we are sticking firmly with them for the remainder of the year.