The January employment report released Friday by the Labor Department indicates the U.S. economy is teetering on the edge of recession. Assuming this data does not get revised upward in the months ahead, the economy lost jobs in January (-17,000) for the first time since August 2003. Employment had been one of the few remaining areas of strength, so this deterioration underscores our cautious approach to the markets early in 2008.

Curiously, stock prices continued to advance following Friday’s employment report. In fact, the S&P 500 posted its best weekly gain in almost five years, rallying nearly 10% from the January low in only eight days. We believe much of the rally was driven by short-covering, not a sign that the bull market has regained traction. As a result, we took the opportunity to reduce equity exposure across our models by 5% as we believe the market is at risk of eventually revisiting the January lows.

Disclosures

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the Funds or any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.

There are risks involved with investing, including loss of principal. Current and future portfolio holdings are subject to risks as well. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies typically exhibit higher volatility. Bonds and bond funds will decrease in value as interest rates rise. High-yield bonds involve greater risks of default or downgrade and are more volatile than investment-grade securities, due to the speculative nature of their investments. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume.

Diversification may not protect against market risk. There is no assurance the objectives discussed will be met. Past performance does not guarantee future results Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. One cannot invest directly in an index.