By Rodric E. Cummins, CFA , Senior Vice President and Chief Investment Officer

Global equity markets suffered further declines during the quarter in the face of a lingering economic recession and deflationary conditions. Bold, new fiscal and monetary policies by the Obama administration were met with both skepticism and cautious optimism by weary investors. A steady stream of weak economic data, poor earnings reports and new government stimulus and rescue programs during the period led to continued high levels of uncertainty and market volatility. The quarter ended in sharp contrast to its beginning as investors were encouraged by indications that stimulus policies are showing signs of stemming the economic decline and improving the health of the financial system. This resulted in a strong equity market rally to close the quarter, yet it was not enough to offset early quarter losses as the S&P 500® Index posted a return of -11.01% during the period.

In the midst of current market uncertainties, it is important to remember that business cycles have always existed and will remain a fundamental element of global economies. With the coordinated global effort to restore economic growth, most economists now point to a modest economic recovery beginning in the second half of 2009. As global economies begin the long process toward recovery, periods of excitement and doubt about the sustainability of future economic growth will certainly fuel further market volatility.

It is also important to remember in these times that financial markets are forward-looking. Financial markets aim to understand and value future economic growth, business profits and market conditions. As a case in point, stock markets have on average reached cyclical lows nearly six months prior to the beginning of economic recoveries. For that reason, we maintain a cautious approach to “fair weather” investing as financial markets can post very strong rallies in the face of economic uncertainties.

Over the past six months, investors have experienced the frustration and concern of watching hard-earned investment balances erode under the pressures of a global financial crisis and an economic recession. The effects have been felt universally throughout every asset class and investment strategy. Investment returns, while never stable or predictable, are undeniably linked over the long-term to the progress and success of capitalism and the growth of global economies. While in the short-term, cyclical economic results and investor sentiment can create dislocations between long-term fundamentals and asset pricing, those periods have historically created tremendous opportunities for investment gains in subsequent years. For that reason, we maintain that a long-term, disciplined strategic approach to investing will lead investors to the greatest opportunities in achieving their financial objectives.

All indices are unmanaged and not available for direct investment. Index performance assumes no taxes, transaction costs, fees or expenses. This update is prepared for general information only and it is not to be reproduced.