Market Review and Outlook 2nd Quarter 2006
The lackluster returns in the second quarter from most asset classes are a reflection of divergent economic indicators. On one side of the argument is the concern that the economy is slowing, a concern based on evidence of a weaker housing market, higher energy prices, and slowing retail sales. This concern led to marked contractions in global equity prices this past spring. Of equal importance is the concern about rising inflation brought on by demand from emerging nations and by strained resources typical at this stage of the business cycle. The Federal Reserve, of course, is caught in the middle, and it will fall to the Governors to determine what level of interest rates will be necessary to stem inflation and achieve a soft landing for the economy.