Reflections About Memorial Day

Memorial Day weekend is upon us and for many it signifies the official start to summer.  Originally called Decoration Day, the true meaning of Memorial Day is not burgers by the pool, but to remember and honor those men and women who have given their lives in service to our country. Officially declared by President Lyndon Johnson in May 1966, Memorial Day can trace its roots back to the Civil War and the remembrance of Union soldiers.

A common tradition is to place a small American flag at the gravestones in Arlington National Cemetery and throughout cemeteries in the United States to remember and honor those brave service men and women who sacrificed so greatly for our nation.

This week is generally short and quiet in the financial markets as many people prepare to leave town or gather with family and friends for outdoor picnics and fun.  But this year continues to be noisy with headlines and stories about:

• The continuing concern over the next Greek election in mid-June and its outcome relative to the Euro zone – The election is thought to be a decision point for Greece – will they stay part of the Euro zone and abide by the previous government’s promise of austerity or will they leave the Euro zone and reestablish their own currency with likely years of difficult economic times ahead?
• China’s slowing economy – After years of vibrant growth that has helped millions of Chinese become middle class citizens, a slow- down is occurring. The government would like to moderate inflation but continue economic growth at a somewhat lesser pace.   Reduced demand from European consumers has also contributed to the slow-down in China.
• The Facebook initial public offering – Many expected these new shares to rise even higher from brisk demand. They’ve disappointed so far due to the pre-sale hype and speculation surrounding the shares.
• The US economy’s pace of growth – Our economy continues to gradually improve as measured by: 1) consumer spending at a record high, 2) retail sales are up again in April for the 21^st time in the past 22 months and 3) private payrolls are up for 26 consecutive months.  Additionally, automobile and light truck sales are up nearly 10% from a year ago. *

It’s easy to see why investor confidence could be shaken.  Could the “herd mentality” be working against long-term investment portfolios?  Often the media reinforces our fears by emphasizing the negative aspect of a financial story. Yet if we look at interest rates (which are historically low) and stock market valuations (including stock dividends) as measured by the S&P 500 which are reasonable considering their price to earnings ratio**, we may see the opportunity in today’s markets.

As you reflect on this Memorial Day, we hope your confidence remains focused on the fundamentals and valuations of the current markets and your long-term investment accounts. Though past performance is no guarantee of future results, perspective on the past may help us better understand the present and the future.

Happy Memorial Day!