Market Perspective:
Equity markets (Globally) advanced to fresh highs, climbing the recognizable wall of worry. The U.S. subprime mortgage market implosion continues to be the central focus of much of the worrying, particularly because our housing market hasn't yet hit base. Investors are concerned that the problems could spread to the broader financial system and potentially quash consumers.

Hitherto Federal Reserve Board Chairman Ben Bernanke reported to Congress on July 18, 2007, that while the housing woes continue and could negatively impact consumers, inflation risks remain in the Fed's crosshairs.
Ratings agencies finally cut their outlook on billions of dollars in lower-credit quality debt. Bear Stearns fessed up that its two subprime-focused hedge funds are worth practically nothing, lending support to rumors that many hedge funds are not appropriately marking down the value of their most illiquid subprime mortgage securities. The ABX Index (a popular gauge of subprime mortgage-backed securities) has lost more than 55% of its value.

Second-quarter earnings reports and the slowdown in earnings growth are now in focus, creating market waves. But market sentiment has become increasingly positive in recent weeks. Current market action reflects growing confidence that the global economy is in good shape. The flood of liquidity available to support more private equity buyouts and further market advances may be more resistant to the widespread risks than previously thought. As expecting for some time, volatility is increasing. With that increased risk, anticipated that the market would adopt a more defensive posture and positioned our sector recommendations accordingly. However, several factors have prompted us to unwind many of our defensive recommendations this week:
# The continued buoyancy of the markets.
# The broadening advance in the global economy.
# The pickup in U.S. economic growth.
# An orderly decline in the dollar.
# Tame inflation, which allows market interest rates to act as a shock absorber each time fears of a crisis or growth slowdown flare up.

For those following our sector guidance, recommendation that you reduce your portfolio allocation in the consumer staples sector to a market weighting while moving both the materials and telecom sectors up to a market weight. However, still recognize that there are significant risks in the economic pipeline, especially surrounding consumers. As a result, continue to recommend underweighting the consumer discretionary sector, while overweighting the health care sector, due to attractive valuations and our belief that much of the "bad news" has been priced into those stocks. Regardless of the market environment, sponsor keeping allocations of stocks, bonds and cash at your long-term strategic allocation targets. Periodically rebalance your portfolio, especially when one asset class outperforms the others. For example, if you are a moderate risk investor with a target of 60% stocks, 35% bonds and 5% cash, your holdings of equities may be as high as 65% (or more) if you have not rebalanced in the past year. The result: You might be taking on more risk than you should.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Data contained here is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. All expressions of opinions are subject to change without notice.