First Quarter 2007 Performance Report

After enjoying a seven-month run of smoothly climbing stock prices, investors hit a nasty road bump in February. Despite the choppiness, the U.S stock market ended the quarter approximately where it started with the S&P 500 up just 0.6%.

Once again the small (S&P 600) and the mid cap (S&P400) U.S. equity market outperformed their large cap brethren (S&P 500). Mid Caps ruled the roost, gaining 5.8% for the quarter. Small Caps turned in a more than a respectable 3.1%.

Value barely continued its run of outperforming growth in the large cap arena. The S&P 500 Growth ishares fell slightly while the Value ishares rose slightly during the quarter. The reverse was true in the small and mid cap stocks as growth edged out value.

The major indexes for most Asian markets were breakeven or down slightly for the quarter. The Shanghai exchange was the one exception. It led the February global sell-off and was down significantly. European stocks fared much better but returns were less than earned in the back half of last year. Overall, over-weighting in international stocks continued to payoff during the First Quarter as the international markets continued to outperform.

The market choppiness in stocks was caused by a familiar group of concerns: a slowing American economy, rising problems with risky mortgages and signs that fast-growing emerging markets like China and India might be due for a correction.

The turmoil was triggered in late February by the Chinese government stating that it wanted to cool down its market’s extraordinary growth. This caused a big drop in the Chinese (Shanghai) market, and a subsequent dip in stock prices worldwide.

The 3.5% one-day loss experienced in the U.S. markets (in late February) is not unusual after the gains of the last seven months but it shook many investors which had become complacent. This left many investors wondering whether this was the beginning of the end of the four-year bull market that started in October 2002, or simply a pause.