CI Outlook - Archives

Year End 2006

Year End 2006

When the year began we thought the market “would test the old highs at 11,800, back off, and end up 7-8% for the year.”  2006 proved to be a far more volatile year.  The Dow opened at 10,600, by mid May moved up to 11,400, and then fell back to 10,700 by July.  The big surprise came in October with a year end rally which carried to 12,500 on the Dow.   In the spring we did not foresee that year end rally.  However, in October we realized the rally was coming and might have further to go.   Therefore, after the dividend payment, we sold the S&P 500 Covered Call Fund.  That was the hedged portion of your large cap holdings.   With the proceeds of that sale we bought the Powershares Large Cap Growth ETF.  That substitution will allow you to participate fully in any further appreciation of large cap stocks.

Looking forward we believe the economy will be weak in the first half of this year.  We think the market is looking past that weakness.  Subsequently, the stock market should stay strong through the spring and large cap stocks should do well.  It is also possible that the energy stocks may recover from the recent panic selling.  It was the continuing ownership of energy stocks that caused us to miss the year end rally in the Dow.  We continue to hold most of these energy stocks and believe they will rally later this year.  This should more than make up for their short term lack of performance in the last three months of 2006.  In addition, we think the long neglected technology sector may pick up as it looks forward to a stronger economy in the second half of this year.

On balance our investment theme for 2007 will be to emphasize neglected areas of the market such as technology, large cap growth and certain energy stocks.  We continue to believe the Federal Reserve will move slowly, if at all, and that the economy will not crash land.  As the year progresses the market should benefit from an expansion of its price earnings ratio.  This expansion will be the first since 2000 and is the fuel which will allow another year of stock market gains. 

We look forward to discussing these ideas and your portfolio with you at your convenience.  Please call or come by we look forward to visiting with you.

 

CJ Brott                                                                      Karen Burns

 


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