Download What a way to end a decade!

A Quarterly
Publication
Winter 2011
What a way to end a decade!
The first 10 years of the new millennium are on the books, and while the decade was truly
unspectacular for investors, we nonetheless finished on a very positive note. The 2010 annual
return data for the major asset classes are as follows:
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Large Cap US Equity (S&P 500 Index)....................................................15.1%
Mid/Small Cap US Equity (Russell 2000 Index).................................... 26.9%
International Developed Markets Equity (MSCI EAFE Index) .............. 7.7%
Emerging Markets Equity (MSCI Emerging Markets Index)............... 18.9%
Fixed Income (Barclays Capital US Aggregate Bond Index)................. 6.5%
Real Estate (FTSE NAREIT).......................................................................27.9%
Across equity asset classes, U.S. Mid/Small
Cap stocks led the way in 2010 and Emerging
Markets again posted a strong year. Fixed
Income had a good year as well, despite the
headwinds that bonds faced in December.
Also, International Developed Markets Equity
trailed Large Cap U.S. Equity, mainly driven
by sovereign debt concerns and relative
market weakness in Europe.
For the entire decade prior to 2010 (2001 –
2009), the S&P 500 Index total return was
(0.02%). Thus, the 15.06% return in 2010 is
literally the entire return for the last decade
— quite a dichotomy across the decade and a
solid year.
In general, all asset classes showed solid
returns for the year and all indications point
to a continuation as we start the new year.
2010 Recap
Stocks started the year with a nice run, only
to see quite a correction in the May – June
time period as the European debt crisis, the
U.S. stock market “flash-crash” and fears of a
slowing economic recovery took hold. Since
then, markets have rallied with a slight pause
right around the election. History has shown
that when the Fed is accommodative on
monetary policy that equity markets tend
to benefit.
On the bond front, the Fed’s posture was
also the key to solid bond returns, and
indeed bonds posted a good year despite the
December pullback, especially when noting
that interest rates have been below 4.00% for
almost all of 2010.
Regarding the economic situation, there are
a few points worth mentioning:
• Unemployment finished 2010 slightly
above 9% after starting the year at 9.9%.
• 2010 U.S. GDP was expected to grow at
an annual growth rate in the range of
2% to 3%. For the first, second and third
quarters of 2010, the annualized GDP
growth rate was 2.7%, 1.7% and 2.6%,
respectively.
• Housing has been, and is likely to
continue to be, a drag on the economy.
Housing data did not firm up until
the last quarter, but does appear to
be improving slowly. The short-term
uptick in interest rates will prove to be a
challenge, but hopefully the worst of the
housing slump is now behind us.
• Inflation remains subdued with final
2010 CPI likely to come in around
1.3%, on the low end of the Fed’s target
range. Despite the fiscal and monetary
stimulus, we do not expect high inflation
continued on back
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to be a problem in 2011. We do, however,
expect the Fed to begin back-tracking
some of the monetary stimulus as soon
as CPI begins to show consistently
high growth.
2011 Outlook
Our outlook for the coming year is as follows:
• U.S. GDP will grow in line with consensus
projections of roughly 2.5% to 3.1% for
2011. Emerging economies’ growth will
outpace that of developed economies.
• U.S. unemployment will gradually
improve. However, it would take more
than 4 million new jobs in 2011 to crack
8%, and we are currently at a 3 million
pace at this time.
• Inflation (CPI) should stay tame in 2011
and will likely end the year in a range
between 1.5% and 2.0%.
• Interest rates may very well end 2011
where they began, however rates may
become volatile throughout 2011 due
to many factors. First, Fed monetary
policy will attempt to keep rates low.
However, an improved U.S. economic
outlook would tend to increase rates, as
inflation expectations would rise. If the
economy, employment and inflation pick
up steam, though, the Fed will be quick
to reverse course on its accommodative
monetary policy.
• Stock markets may continue their strong
2010 close into 2011. A correction is
possible if the market continues to run
because the second half of 2011 will
present U.S. corporations with tougher
year-over-year earnings comparisons,
which may hurt earnings growth. Also,
a continued run-up in stocks could raise
valuations (which are currently at the
upper end of the fairly valued range) to
unsustainable levels without a correction
of some sort.
Overall, 2011 should continue to offer
positive returns for investors, and certainly
a stronger environment as the economy
continues to improve. Coupled with a
still accommodative Federal Reserve, the
markets have had a very positive start to the
year. We still have a number of wild cards
for investors to watch, such as:
• The European sovereign debt situation
• The dollar’s movements and the impact
on our import/export markets
• Commodity prices, especially oil and
other manufacturing inputs and the
ultimate impact on inflation
• The Fed’s ability to continue its
balancing act between promoting
economic growth and the potential
pressure for higher future inflation
As always, we will continue to monitor
developments closely and make appropriate
portfolio adjustments to best take advantage
of the opportunities in the markets.
One of Indiana’s
Oldest & Largest
Independent
Trust
Companies
Applications are Available Online for 3 College Scholarships
Indiana Trust Celebrates 10-Year Anniversary by awarding a total of $26,000 in scholarships
Indiana Trust & Investment Management Company announces
Applications for the Indiana Trust and Investment Management
that applications are available for three scholarships in the east
Company scholarships are available through the offices of east
central Indiana area (defined as Blackford, Delaware, Grant,
central Indiana high school guidance counselors or by calling
Henry, Jay, Madison, Randolph or Wayne counties).
Coles Marketing Communications at 317-571-0051. They are
One $1,500 scholarship will be awarded to an east central Indiana also available online at www.indtrust.com/resource_center/
scholarships01.php.
high school senior accepted and enrolled at Anderson University
for the 2011-2012 school year.
“We developed the scholarships to reward the hard work of
One $1,500 scholarship will be awarded to an east central Indiana students planning to attend Anderson University, Ball State
University or Ivy Tech,” states Ted Jarvis, senior vice president/
high school senior accepted and enrolled at Ball State University
senior portfolio manager for Indiana Trust and Investment
for the 2011-2012 school year.
Management Company. “After we award the scholarships this
One $1,000 scholarship will be awarded to an east central Indiana June, the grand total will amount to $26,000 that Indiana Trust
senior accepted and enrolled at Ivy Tech Community College
has awarded to deserving students.”
(Muncie, Anderson, Marion or Richmond campuses only) for the
For
more information regarding the Indiana Trust and
2011-2012 school year.
Investment Management Company Scholarships, contact the
Deadline for all three scholarships is March 25, 2011.
office of an east central Indiana high school guidance counselor,
or call (317) 571-0051.
Candidates must be Indiana residents who are currently
enrolled in the senior class of an east central Indiana high school.
ITC_Winter_11.indd 2
The Indiana Trust Adviser
is published four times a
year. All articles contained
herein are solely for general
information purposes, and
are not to be construed
as legal, accounting, or
other professional advice.
The authors and publisher,
accordingly, assume no
liability whatsoever in
connection with the use of
this material. Every effort
has been made to ensure
this material is correct at
the time of publication.
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