Weekly Results:

S&P 500 -3.0%
NASDAQ -3.76%
Russell 2000 -3.80%
MSCI Emerging Markets -2.69 %

Market Thoughts | 6/30/2008

Near-term:

The next few days present irregular trading patterns given the quarter-end, Russell Index rebalancing and oversold broad markets. One can expect money managers to protect profits and redeploy cash into new strategies. These activities are mostly related to market mechanics rather than a gauge for conviction levels. In addition, this is a holiday shortened week that features a much anticipated monthly economic data.

Big Picture:

Higher oil and lower stock markets are reflected in prices and are fully acknowledged by mainstream coverage. It's evident that policymakers and foreign leaders are closely watching these globally inter-linked markets. Powerful macro trends are affecting major asset classes. Commodities are near or at all-time highs; credit risk continues to deteriorate and recovery in US dollar is unclear. Once again, investors are seeking catalysts for trend-reversals. In recent weeks, concerns of inflation and a potential slowdown in Emerging markets are topics of interest.

Portfolio Management:

It is not an easy period for Asset managers, especially as the S&P 500 is down nearly 20% since October 2007 highs. On the positive side, broad markets appear oversold. That's after recent sell-offs which have nearly wiped out gains from March lows.

Risk tolerance and investment sentiment can determine the outcome of a potential rally. Further analyst downgrades, breach of technical levels and global inflation worries confirm the ongoing downturn. Nonetheless, mean reversion can be fast and furious when reaching extreme levels.

Financials remain vulnerable and require more patience for a recovery. Select areas in Real Estate and European banks offer shorting opportunities. Similarly, steel producers in Latin America are reaching extreme levels. Companies can face pressure if demand is lower than expected. Finally, US based Innovative and Large Cap area present attractive entry points.

Key Levels:

S&P 500 : [1278.38] At the low range of annual trading range between 1300-1400. Currently, index is a few points away from March 17^th lows of 1256.98. Momentum suggests a minor recovery and psychological level is near 1250.

Crude: [140.21] Record week with intra-day highs of $142.60. June established a new trading range between $130-140.

Gold [919.50] Strength developing in the past 2 weeks. Growing buy interest among investors below $860. Annual highs stand at $1011 reached March 17^th.

DXY –US Dollar [72.36] Interestingly, the currency has declined since reaching a peak on June 13^th. Perhaps, a reflection of unclear Fed Policy concerning interest rate hikes.

US 10 Year Yield: [3.96%] Struggling to stay above 4%, after a surge in yields this second quarter.