"The bad news: Investors are looking for more trouble in rising rates and are far from ending their selling [of bank stocks]. Adding to the woes is that many smaller- and mid-sized regional banks are still priced at hefty premiums. This means they'll remain targets for sellers in reaction to interest rate fears as well as for any additional bad news. . . . If you've scored some big gains in the banking sector during the past few years, it would be wise to take some profits off the table. After the summer passes, you'll be able to go back in and buy [banking stocks] at more attractive prices."
Elliott Gue and Neil George
"The economy is, in a word . . . en fuego! Profits, jobs and investments are all surging, yet this is bad news as well. Taking the punch bowl away just when the party is starting to get interesting is the Fed's job, and Sir Alan has stated he is ready to serve that function again, and soon. . . . It's our strong belief that investors are 'selling on the rumor' of the Fed raising rates and will 'buy on the news' of it actually doing so. The market has already done much of the work the Fed will ultimately do, with the 10-year note rising from a yield of 3.68 percent to 4.76 percent in the past six weeks. . . . We remain optimistic on the outlook for stocks. Small-cap stocks in particular are attractive, with favorable growth, valuable and multiple catalysts on the horizon."
Michael T. Moe
"We continue to expect moderate gains over the next 12 months from diversified, high-quality stock funds. Two rotten months (March and April) do not a bear market make. Rising interest rates, increased supplies of stock and extreme economic complacency among large investors tend to be bad for stocks. However, much better than expected corporate earnings along with increasingly attractive valuations should counteract those factors. We did not adjust the broad allocations of our model portfolios this month . . . however, we did adjust the portfolios where necessary to decrease their interest-rate risk. Specifically, in many of our model portfolios we move five percentage points from an intermediate-term bond fund to a short-term bond fund."
The No-Load Fund Investor
"Pharmacy benefit managers (PBMs) are uniquely positioned to take advantage of rising drug spending and increasing health care costs. Through formulary management, therapeutic interchange, network development and cost-sharing techniques, PBMs help employers and managed-care organizations strike a balance among plan access, cost and quality. . . . Our top pick in this group is Caremark (CMX). The company's industry-leading portfolio of services bodes well for future growth. Management recently completed the acquisition of AdvancePCS, which offers cross-selling opportunities in mail and specialty distribution."
John Ransom and Michael Baker
Monthly Research Register
Raymond James & Associates
St. Petersburg, Fla.