*  There’s vengeance, and then there’s vengeance.  In last month’s Monthly Stock Market Summary, we noted that aversion to risk among stock investors had returned with a vengeance. In May, stocks suffered their first sizable loss and first correction (a pullback of 10% or more) since the bull market began in March 2009. Well, that vengeance has only intensified since then. The S&P 500 Index lost 5.24% in June and hit a new low for the year. The S&P 500 has fallen more than 15% since its near-term peak on April 23 and is now down 6.65% for the year-to-date. About the only good thing to say about stocks lately is that they’re still up more than 40% in this bull market.

*  Investor sentiment is gripped by the fear that the U.S. economy might be in for a significant slowdown or even a double-dip recession.  Among the symptoms of economic softness that have spooked investors: weak job creation, a slump in housing sales in May, a drop in consumer confidence, and declining economic indicators in China, which has been a prime mover of the global economy in recent years.

*  As hard as it may be to do in the midst all this fear and trembling, we think investors need to maintain some semblance of a balanced perspective.  The recent signs of economic weakness are nothing out of the ordinary; indeed they have been prevalent at the same phase of past economic recoveries. For instance, The Wall Street Journal noted that "after rebounding from a recession in late 2001 and early 2002, the economy had a 12-month stretch in which it grew at a paltry 1.5% annual rate, sparking fears of a double-dip recession. In late 1991, growth waned after a recovery had started." In contrast, in the past 12 months, the economy has gotten off to a faster start than in 2002. And the consensus of economists surveyed by the Journal is that the economy will grow at a 3% rate in the second half of the year -- a rate not exactly spectacular, but hardly catastrophic, either.

*  The big issue is whether Mr. Market, as is his manic-depressive nature, is being unduly pessimistic or not in pricing all the economic and other risks facing the market.  Certainly, pessimism has been his overriding emotion in the past two months. Market strategists (and us) who are in the glass-is-half-full camp point out that the second-quarter earnings of the S&P 500 Index companies are expected by Wall Street to rise about 27% from the year-ago period. Also, individual incomes are rising (which could stimulate consumer spending), corporate America is flush with cash, and the industrial recovery has been strong.

*  Last but not least, we think stocks have attractive valuations going for them.  Our research shows that the S&P 500 Index stocks now have an average price/earnings ratio of about 13.5 times 2010 estimates, compared with a historical average of around 16. And we would characterize stocks as downright cheap in relation to bonds. The S&P’s earnings yield (earnings per share divided by the stock price) is currently more than 7%, while the bond market, as represented by the Barclays Capital U.S. Aggregate Bond Index, is yielding less than 3%. (Generally the two yields are about equal.) We continue to think that corporate earnings and the stock market will advance at double-digit annual rates over the next 12 to 24 months.

*  In June, growth stocks and value stocks performed similarly and poorly.  The broad-based Russell 3000 Growth Index declined 5.61%, versus the Russell 3000 Value Index’s 5.89% loss. For the year-to-date, value holds a solid margin of outperformance: its 4.83% negative return is 2.42 percentage points less negative than that of growth.

*  Not surprisingly in such a downer of a month, all nine sectors of the Russell 3000 Index lost money.  Two defensive sectors, utilities and consumer staples, turned in the best relative performance; their losses amounted to less than 3% each. The consumer-discretionary sector, reflecting investors’ concerns about the outlook for job and economic growth, produced the biggest loss, more than 9%. For the year-to-date, the consumer-staples sector has been the best relative performer, with a negative 4% return. Energy has been the biggest loser, declining more than 14%.

*  Among capitalization segments, large-cap stocks performed the least badly.  In June the large-cap Russell 1000 Index lost 5.28%, compared with the Russell Midcap Index’s 6.25% drop and the small-cap Russell 2000 Index’s 7.75% decline. For all of 2010, small-cap stocks have lost the least, a negative 1.95% -- a performance advantage of 0.11 percentage point over mid-cap stocks and 4.45 percentage points over large-cap stocks.

The views expressed represent the opinions of Turner Investment Partners and are not intended as a forecast, a guarantee of future results, or investment recommendations. Past performance is no guarantee of future results. The indexes mentioned are unmanaged statistical composites of stock-market performance. Investing in an index is not possible. Earnings growth does not necessarily lead to an increase in share prices. For institutional use only.

The S&P 500 Index tracks the performance of 500 widely held large-cap U.S. stocks in the industrial, transportation, utility, and financial sectors. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell 3000 Growth Index measures the performance of those Russell 3000 Index companies with higher price/book ratios and higher forecasted growth values. The Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price/book ratios and lower forecasted growth values.