Investment Recap First Quarter 2005

Accounts gained ground despite the fact that the major stock market averages declined in the first quarter of 2005. Investors have become discouraged by a combination of higher oil prices and the continued tightening by the Federal Reserve, causing higher short-term interest rates. Recently, signs of lower industrial activity have added further to the confusion. We are now in the “earnings season” where first quarter earnings announcements are being released. While there have been some negative surprises and pre-announcements, we expect our stocks to show good results. Furthermore, we are encouraged by the dramatic increase in cash building up on corporate balance sheets. We expect this cash to be used to raise dividends, buy back stock, and to, perhaps, result in increased mergers and consolidations (a trend that already has begun).
The higher interest rates have caused the bond market to dip and it is generating better buying opportunities for our balanced and bond oriented accounts. As has happened over the last two years, despite a slow start, we expect the markets to show gains by year end.