Market Notes June 1, 2011

Bending Not Breaking

In our 2011 Lowe Wealth Advisors Outlook report, we projected that the first half of 2011 would have the potential for continued economic recovery and growth. We felt that the second half of the year could’ under certain circumstances, enjoy ongoing potential growth, but that various global and domestic pressures could manifest in a slowing or a peaking of the recovery cycle.

While numerous unanticipated factors such as the Middle East and Japanese crises have been drags on the capital markets during the first half of 2011, positive domestic factors have been adequate to continue the overall trend of potential growth, albeit at a reduced pace.

As we move into June, almost none of the global or domestic pressures have eased with the exception of the Japanese nuclear crisis. In fact, Europe continues to struggle with its debt crisis, the Middle East remains in turmoil and the U.S. debt ceiling and budget deficit concerns have not been addressed.

Due to the ongoing headwinds affecting the economy and capital markets Lowe Wealth Advisors sees warning signs that the stock market is bending but not yet breaking. While market peaks can take months to form, and of course no one can predict market movements, we do believe that some strategic shifts are appropriate in many of our actively managed discretionary allocations (not all portfolios are actively managed). In most cases, our strategic shifts are not significantly changing the percentage of allocations in stocks. Rather, our intent is to reduce exposure in sectors in which we believe there may be growing levels of risk.

These sectors are as follows:


While the financial sector seemed poised for a potential rebound at the start of 2011, the pressures of the European debt crisis, economic fallout from the Japanese earthquake and other domestic factors have caused the sector to show weakness. Our shifts will gradually continue to reduce exposure to the financial sector, while not eliminating it entirely.

One such shift will entail selling one of our large company dividend focused exchange traded funds (ETFs) and purchasing another large company dividend focused ETF that avoids the financial sector.


Since early 2011, we have focused on lower quality and short-term bonds and fixed income holdings. We have often stated that this sector would be dynamic and could necessitate shifts on a more regular basis. At this time, we will reduce our exposure to high-yield and lower quality bonds in favor of short-term higher quality holdings. In part, this shift is due to the ongoing pressures of the European debt crisis and our domestic debt ceiling issues. Further, we intend to reduce our exposure to Floating Rate debt. Floating Rate debt could return to our allocations once interest rates and bond yields show signs of increasing. At the present time, there is downward pressure on yields, which is not favorable for Floating Rate debt.


Ongoing short-term weakness in the commodity sector is expected but Lowe Wealth Advisors believes that commodities and gold in particular will remain part of our long-term strategy. Our long-term view of a potentially weakening U.S. dollar, as well as a potential inflationary environment remains intact. We may modestly seek to increase our gold holdings from their present levels.

In conclusion, our strategic shifts are not dramatic in nature. Rather, they are a first step in preparing for a possible weakening market in the second half of 2011. We are reducing specific sector allocations in favor of broader market exposures and again, we are not as of today moving toward a defensive posture or any significant reduction in target equity exposure.

If we see a summer rally, we believe it could lead to overvalued market conditions and excessive optimism. This in conjunction with any additional warning signs could ultimately lead us toward a more defensive shift later in 2011. Please note that the debt ceiling or other issues could mandate a significant strategic shift sooner than anticipated. Lowe Wealth Advisors will keep you informed of our thoughts regarding this and other key issues.

Client Service Agreements

By now most of our clients should have received an updated Client Service Agreement. Thank you to those who have returned them already and thank you to those of you are will be sending them back this week.

We want to note a typo on the exhibit of the Schedule of Assets. This should read assets.

Please note: Harold Lowe has a new email address. It is All other Lowe Wealth Advisors email addresses remain unchanged. Please update your address books to ensure future delivery of emails to Harold.

This commentary is intended for the dissemination of general information regarding market conditions to Lowe Wealth Advisors clients. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this report will come to pass. While any general market information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Individual client needs, asset allocations, and investment strategies differ based on a variety of factors. Any opinions expressed are current only as of the time made and are subject to change without notice.

Important Disclosures

  • Not all portfolios are actively managed. If you have a question about how your account is being managed please contact us.
  • No diversification can completely protect against market risk or other risk factors with investing. A diversified portfolio could still lose money.
  • An Index is a portfolio of specific securities (common examples are S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

Foreign investing carries additional risk such as currency risk, political risk and different accounting standards.

*Lowe Wealth Advisors is a registered investment advisor.