To Our Shareholders:
Stocks were mixed in the quarter ended December 31, 2012 as declines during the fall were largely erased by a year-end rally that preserved strong gains for the markets in 2012. Ongoing US fiscal issues, highlighted by the presidential elections, weighed on the market early in the quarter. Despite little or no resolution to these structural issues, the markets staged an impressive post-election comeback helped by continued gradual improvement in economic indicators at home, ongoing commitment to low interest rates and liquidity by the Federal Reserve, signs of economic improvement in China and a lack of bad news coming out of Europe. For the quarter, the S&P 500 declined 1.0%, the NASDAQ lost 3.1% and the Russell 2000, which includes smaller companies, gained 1.4%. The quarter's best performing sectors included financials, industrials and consumer cyclicals. Technology, energy and utilities were among the worst performing groups. The yield on the ten-year Treasury bond ticked up from 1.66% to 1.78% during the quarter, reflecting modestly improving economic indicators.
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