"Never in the field of human conflict was so much owed by so many to so few."—These immortal words were delivered by Winston Churchill in the House of Commons to express his heartfelt gratitude to the Royal Air Force as the Battle of Britain peaked on August 20, 1940.

With all due respect to Churchill, the presidential election this fall might lead to similar sentiments from the ultimate victor. From what I gather, the election might hinge on a few select districts in a few key swing states. With the latest polls indicating a very tight race, it should make for interesting viewing come election night.

Will the same be said about the equity markets for the second half of 2004?...

Meanwhile, the equity market continues to languish. Through mid-July the S&P 500 is virtually flat for the year while the NASDAQ Composite is down nearly 4%. In a sense the market is starving for leadership, or some catalyst to invigorate investor sentiment. As we sort through second quarter earnings announcements I think it is increasingly likely that portfolio returns for the remainder of the year may hinge upon the performance of a mere handful of bell weather stocks. Which industry leaders will rise to the occasion as the chosen few to lead the market higher? That, in a nutshell, is what investors have to figure out. Our approach to answering this critical question focuses on three sectors of the market.

The first potential leadership sector is health care, which benefits from the powerful tailwind of an aging population in both the U.S. and in most of the industrialized world. Health care does lack a near-term catalyst, but a research breakthrough could change investor sentiment quite dramatically. Health care companies spend billions annually in research and development, driving innovation and discovery. The difficulty comes in predicting the timing and future sales potential of new products.

The second area to keep an eye on is the industrial sector, which would benefit greatly if the domestic economy can continue to grow without leading to accelerating inflation and higher interest rates. That’s a delicate balance, but one worth monitoring nonetheless.

Technology represents the third and final sector with leadership potential. For the record, I’m not sure any discussion of market leadership could be complete without including tech stocks in the debate. Technology stocks are like eight year-old boys: it’s just not in their nature to stay in one spot very long. Explosive rallies are all too often followed by painful descents. Despite this inherent volatility, innovation remains a powerful driving force within the industry. Innovation, in fact, drives this feast or famine cycle as new applications are developed, and from time to time, revolutionary new paradigms are discovered.

Leadership within technology will ultimately come from companies that exhibit flawless execution. Effective cost control and inventory management, new product development and deliverability, and prudent financial management are essential ingredients of success, if not survival, in the technology industry.

Going forward we will closely monitor the leading companies in these three sectors in order to anticipate and quantify leadership potential. Sound like a daunting task? Not to worry, I have help! I’d like to introduce the latest addition to the Willingdon team. Tom Searson joins us a senior research analyst.

Tom’s Bio:

• Tom holds an MBA from the University of North Carolina Kenan-Flagler Business School with a concentration in investment management. His undergraduate degree is from the University of Notre Dame, where he majored in accounting.
• Tom is a CPA and is also enrolled in the CFA program. Previously Tom worked as a senior accountant at Ernst and Young, LLP and as a fixed income analyst at Turner Investment Partners.

Tom has been a great addition, and I am very exciting about steadily building the Willingdon team. As Tom will soon realize, "We are still masters of our fate. We are still captain of our souls." Prime Minister Churchill September 9, 1941

(I’ll save the blood, toil, tears, and sweat line until he’s been here a few weeks.)