Market Update

Market Commentary: The mainstream media continues to focus on whether or not various indexes hit new intraday highs, while seemingly oblivious to the fact that new highs are an expected occurrence in a bull market. Every market pullback is being met with new buying, which has allowed the S&P 500 to maintain its steady upward advance. Meanwhile, the yield spread between High Yield and Government Bonds continues to narrow and is quickly approaching all time lows. High Yield Corporate Bonds are priced for perfection with yields currently less than 8% and default rates well under 2%. This suggests that the bullish run in High Yield that began in late 2002 is nearing its end.

Sectors: Energy, Materials, Utilities, and Telecom are still providing the leadership while Financials, Consumer Discretionary, and Consumer Staples all lag. Consumer sectors were hurt this past week as retail sales reports were not as robust as expected. Quarterly holding reports filed with the SEC today revealed that Warren Buffet and other large investors have increased their stakes in various railroad, health care, and financial services companies, which helped those groups have a nice pop today.

Styles: Small cap stocks are starting to separate from the pack. Unfortunately for them, they are separating to the downside. Micro-Caps continue to weaken and now sport an RSM value that is 24 points behind the current leader, Large Cap Value. Additionally, Micro-Caps have failed to regain their February peak and have lost all their intermediate-term momentum in the process.

International: China had a huge one-day surge that helped propel it to the upper tier of our rankings. Additional gains today should help it to hold onto that improved ranking next week. The Americas are showing extreme dichotomy with Latin America and Canada holding the top two spots while the USA lags behind all other markets except Japan. The US dollar has been exhibiting some short-term strength, which normally would provide some headwinds to international holdings. That has not been the case so far, as the momentum in international markets has been strong enough to overcome the negative currency translations.