Market Summary

The first quarter of 2006 has started out with a bang! Nearly every sector except utilities, one of last year’s hot sectors, is up. You could have invested in just about anything and made money (and hopefully you did). US stocks, both large and small; international and emerging markets, all posted excellent returns. The S&P 500 index increased 3.7% for the quarter, more than all of 2005!

In fact the S&P 500 earned more last quarter than the average annual return of the index over the past 5 years. Small and medium sized stocks continued to out perform their larger brethren by a large margin. The Russell 2000 index of small stocks rose nearly 14% setting a new record high. “Value stocks” outperformed “growth stocks” nearly 2 to 1 for the quarter according to Morningstar, Inc.

During the first quarter, the Federal Reserve, under new Fed chairman Ben Bernanke, continued increasing short term rates. Two rate hikes of 1/4% were added to the previous 13, pushing the prime rate up to 7.75%. This is the index tied to most home equity loans. In my year end summary, I predicted the Fed would stop at this level. However, recent Fed comments like this, "some further policy firming may be needed.” indicate the fed will continue increase rates at least one more time.