Market Summary
| Index | 3Q 2006 Return |
| Dow Jones Industrial Average | 5.10% |
| Nasdaq | 3.98% |
| S&P 500 | 5.17% |
Following a very difficult market environment in the second quarter of 2006, markets responded favorably to the Federal Reserve Open Market Committee’s (FOMC) decision in June to pause after 17 consecutive interest rate increases. In the most recent statement, dated September 20th, the FOMC indicated that economic growth appeared to be slowing but that inflationary pressures remained. While the FOMC expressed an expectation that inflation pressures seemed likely to moderate over time, it left the door open for additional rate increases if necessary. The FOMC statement of a slowing economy is supported by manufacturing data, declining home prices, retail sales and auto sales data.
Another important market driver was the rotation out of commodity related securities, particularly large capitalization stocks in technology and defensive sectors, such as consumer staples and services. Several theories exist to explain the decline in commodity prices. These include easing of Middle East tensions, fewer major hurricanes in oil producing regions of the Gulf of Mexico this year, the end of the summer driving season, unwinding of the carry trade and the revision of the Goldman Sachs Commodity Index (GSCI). The GSCI significantly reduced the allocation of certain commodities, such as Unleaded Gasoline which meant that investors attempting to approximate the benchmark in the allocation of their portfolios would sell these securities and the result would be falling prices.