E - ALL OF THE ABOVE

Was the S&P 500 index's 3Q decline of -1.9% a result of A.) an earnings slowdown B.) rising interest rates C.) oil price increases or D.) a lack of clear political leadership?  Our vote is for E - all of the above.  Springing off the trough of the 2001 - 2003 slowdown, the growth rate of corporate earnings has peaked.  The market has anticipated this earnings slowdown; witness the 29% return posted last year.  Greenspan has all but said rates will continue to rise despite oil nearing $50.  The November election is close enough that a clear mandate to lead the nation is not obvious.  All returns are after dividends.

That's a lot of headwind for the market.  In the 3Q, the energy sector was up an impressive +11.0% (no surprise).  Tellingly, all 27 of the companies in this S&P 500 sector were up.  Consumer staples were down -5.5% as higher energy costs forced the consumer to retreat.  Tech had its own share of declines; the sector was off -9.9% with bellwethers Cisco down -23.6% and Intel down -27.2%.  All returns are after dividends.

Gold Leaf is an independent Registered Investment Advisor that buys stocks in companies with sustainable competitive advantages that generate cash.  Gold Leaf's goal is to provide objective investment management and to protect client assets on the downside while participating in most of the market's upside.  On September 30th, portfolio attributes were:

Our higher yielding stocks tended to perform well in the Q as did some of our healthcare stocks, notably Pharma Products and Lab Corp., each up over +10.0%.  Our worst performer was one of our retailers (subject to the consumer retrenchment mentioned above).  Tractor Supply noted inventory problems, and the stock was down -24.8% for the Q.  Gold Leaf continues to search for undervalued companies with sustainable competitive advantages and free cash flows that generate long term value for our clients.  All returns are after dividends.

Gold Leaf does not provide legal, accounting, or tax advice.  Please consult your personal accountant or lawyer.