This is Your Captain Speaking

Most of us have flown on a plane somewhere and many have heard the famous words above coming over the loud speaker of the jet. Typically, the voice has a slight southern drawl (do you have to be from the south to be a pilot?) and says something reassuring like “we’ve reached a comfortable cruising altitude, we expect to get yawl there on time. Sit back, relax and have a nice flight.” I wish we could have that pilot talk to the investment community right now and make us feel calm about reaching our investment destination. The stock market is closing out June with another bad month of negative numbers coming mainly from the negative news, generated by the unethical behavior of a few.

Through midday Friday, the end of June, the S&P 500 was down about 7% for the month, bringing the year-to-date total return to about down 13% for the year. This negative stock performance has come in spite of strong performance from the economy. The recent good news from the economic front last week included the following:

• First quarter GDP (measure of growth for economy) was revised up to 6.1%.
• June sales to consumers appear to be strong based on early sales data from major retailers such as Wal-Mart.
• Disposable income, the money left over after taxes, increased .3% in May for a second straight month. Wages and salaries rose .4% after no change in April.
• Consumer confidence, as measured by the University of Michigan, although lower than in the recent past, was higher than expected.
• The number of U. S. workers filing new claims for state unemployment benefits fell last week for the fourth time in six weeks as companies hold the line on firings.

However, it’s the corporate bad news from WORLDCOM, Xerox and others that continue to rattle investor confidence and drive the stock markets lower. This unethical behavior is not wide spread relative to the number of well-run companies that comprise the bulk of the markets. Yet the behavior of a few continue to tarnish most of the stock market. What we need to hear is… “Investors, this is your captain speaking. If you look out at the economy below you’ll see a lot of good things happening. We’re expecting a smooth market from here, but if any more market scandals appear we’ll gain a little altitude and cruise over any turbulence. If you’re a member of our long-term investors club, please relax and know that this investment market is still the best place to invest to get you to your financial destination. Thanks for investing with us today.”

This week ended with a modest increase in the major stock averages. Let’s hope the markets listen to our mythical captain in July and gain some altitude on the positive economic news.

Data sources for the article were Baseline, Bloomberg, CNN MONEY and Ned Davis Research.