The blood pressure of the investment community has been elevated several notches in recent weeks as threats to the global economic recovery have surfaced. Stock markets around the world have slumped with unnerving volatility, even though a consensus of economic forecasters have reassuringly continued to project a solid if not spectacular global recovery in 2010 and the latest batch of corporate earnings reports have been well above analysts’ expectations. Creating additional palpitations has been a sharp drop in commodity prices and a corresponding rise in the dollar as risk-averse investors have responded with a flight to safety.

Today, Thursday, February 4th, Marietta Investment Partners is celebrating it's 10th anniversary. We thank our clients for their support though the challenging and, at times, difficult last decade, which included two brutal recessions and two bone-crushing bear markets. We remain dedicated to serving our clients and we are confident the next decade will provide satisfying investment returns.

The corporate earnings season is fully underway and we are tracking closely the results on a company-by-company basis. We have combed through the S&P 500 Index and the S&P 400 MidCap Index and have selected 134 stocks that meet our criteria for inclusion in client portfolios. We have similarly screened over 440 international stocks that trade with American Depositary Receipts (ADR’s) and have market capitalization of at least $1 billion, and have identified 116 stocks that merit close attention. In coming days and weeks we will review carefully the revenues and earnings progress of the 250 companies in our “universe,” together with the CEOs' comments on business conditions and future expectations. We will also monitor the response of research analysts and the reaction of the markets. Our review will have a direct and immediate bearing on our purchase and sale of stocks in client portfolios.

In our January 4 Outlook, we contrasted the accelerating economic strength of China, India, and Brazil with the struggling U.S. and European recoveries. Fresh evidence of Chinese prosperity is the surprising surge in both exports and imports in data released overnight. Another indication may be found in today’s Financial Times in an article “China lenders eclipse U.S. rivals.” The article reveals that all 7 of the world’s top valued banks (ranked by bank share price to book value) are Chinese or Brazilian, and concludes the data “reflect growing [investor] confidence in emerging markets, particularly China and Brazil.” In 2000, 5 of the top 6 highest valued banks were American. To highlight the contrast among economies, another article on the same page of the Financial Times, “Lingering doubts over recovery keep European inventories low” reveals that European business executives continue to have very low confidence in their own economic future. To be sure, the latest The Economist poll of forecasters (1/9/2010) foresees an anemic 1.4% real GDP growth for Euro area in 2010.

Amid further evidence of global economic recovery, many of the trends dominating financial markets since early March were extended through the 4th quarter. The U.S. and international stock markets rose, including gains of 5.5% in the Standard & Poor’s 500 Index, 6.7% in the EEM Emerging Markets ETF, and 1.1% in the EFA Developed Countries ETF. Most commodity prices continued their ascent, including a hike from $70.61/barrel to $79.36/barrel in the price of oil and a pop from $996/ounce to $1,100/ounce in the price of gold. The yield rose (and price fell) on the benchmark 10-year U.S. Treasury note and the interest rate on most money-market funds remained at or below 1.0%. A notable new development was a December rally in the dollar against major currencies, which may be attributed to surprisingly positive U.S. economic data suggesting that the recovery might be accelerating. An immediate consequence of the dollar’s bounce was to reverse partially the upward surge in commodity prices, and in particular gold, and to reduce the relative attractiveness of international investments.