The Long and Short of It

Last week the S&P 500 lost over 4% and is now down 12% from its April high. The sell-off has been focused on troubles in Europe, particularly in Greece, and Spain, as well as some of the structural and demographic challenges that the Euro Zone is facing.

Instead of being fearful because of the recent headlines, we believe it would be helpful for long-term investors to focus on the positive side of what has been happening in he U.S. economy.

1) Corporate earnings are improving, up 47% year over year, with S&P 500 company revenues up 12% year over year during the quarter.

2) The economy is growing again, three quarters of GDP growth and business economists just raised their U.S. growth estimate to 3.2% for 2010.

3) Inflation is low, both the producer and consumer price indexes (CPI) fell in April; inflation is now at its lowest level in four decades. Stocks normally do better in periods of low inflation.

4) Interest rates are low and economic forecasters now see no interest rate hike until into 2011.t

5) Housing is slowly improving, existing home sales rose 7.6% in April, spurred by tax credits yes, but still improving. Jobs are being created again, with net 573,000 jobs added during 2010.

The fundamentals often paint a very different picture than the fear generated by the headlines.

The big question is are you a long-term investor or a short-term investor? If you have a time horizon of 3-10 years, please take the short-term “voice” of the fear driven headlines out of your thought process!