Gearing Up For 2006

ax selling season is now behind us, and it is time to gear up for 2006. The year 2005 was indeed a taxing year in itself. Rising interest rates, hurricanes, floods, oil prices and the Iraq War all posed challenges to the corporate world. Cheap labor overseas is steadily changing our economy from one based on manufacturing to one growing with service industries and intellectual properties. Technology has become our most important product and it is one of the reasons we think many stocks on the NASDAQ exchange offer great promise in the year to come. Without offering a prediction for the market as a whole in 2006, we do feel that certain sectors in the NASDAQ will outperform the S&P 500 and probably the Russell 2000 small cap index as well.

So, how does a prudent investor ‘gear up’ for 2006? Well, a reasonable action would be to sell off the underperforming ‘dogs’ by the end of January. Poor performing stocks historically are under tax selling pressure in December, and usually get bid up in early January when those pressures abate. In effect, clear the deck and position yourself holding strong stocks for the most probable trends in 2006. While rising interest rates and the war in Iraq have been holding the market back for many months, as the Fed eases its tightening stance, and the war winds down in 2006, a more positive investment environment should emerge.

A wise suggestion would be to sit down with an investment professional to make an investment guideline for the year, or go over the one in place, and determine what balance of stocks, bonds and other investment vehicles make the most sense for you.

By William G. Roe, Senior Vice President
Melhado, Flynn’s Strategic Asset Management Group: William G. Roe, Regional Manager, Allen G. Oechsner, Senior Portfolio Manager, Brian D. Bensch, Portfolio Manager, Mark Generales, Sales Manager, Ruth Hauck, Service Manager