It was another wild month on Wall Street as triple digit moves were once again the law of the land. Traders recently came back from the Labor Day break ready to digest a spate of both positive and negative news. On the bullish front, the recent slide in commodities (oil, gold, copper, steel, wheat, corn, etc.) has helped to ease the burden of inflation pressures. However, the slide is due mainly to a recent sharp advance in the dollar (a negative for corporate profits) and legitimate concerns over the health of the global economy (a weak economy consumes less energy and raw materials). Last Tuesday was a great example of the “good news – bad news” market: in the first two hours of trading, the Dow rallied by over 250 points, but the rally faded with the Dow ending the day down 27 points. Wednesday saw just the opposite as the blue chips lost 100 points early, only to finish in the plus column with a 16 point gain. But last Thursday was a watershed day with the Dow losing 344 points, a loss of 3.0% due to weak employment figures, disappointing retail sales and rumors of problems with large hedge funds. Friday’s trade saw more of the same as the Dow lost 150 points early on but managed to reverse course and end the day in the green. When all was said and done, the Dow was lower on the month by 1.37% (now down for a fourth consecutive week).
On a percentage basis, the NASDAQ was weaker than the Dow for the month. Weak earnings reports from the likes of Dell (DELL) and bearish forecasts for semiconductors and cell phone makers pushed the tech-heavy index to its lowest levels since mid-July. For the month, the NASDAQ lost -4.38%, finishing at 2255.
Through last Friday, the Dow is down -15.4% for the year while the NASDAQ has lost -14.9% of its value.
The Appleton Group Composites™
All of our firm’s managed portfolios continue to significantly outperform both our benchmarks and the overall markets, often by wide margins. The flexible asset allocation discipline that has become the hallmark of our firm has prescribed significantly more defensive positions over the course of this year, favoring cash and bonds and bear-market investments over equities. While all of our managed portfolios are down slightly for the year, each has successfully limited portfolio losses to low-mid single digits. With all due respect to the last bear market, 2008 will go down as one of this generation’s more broad-based declines, hitting growth stocks, value stocks, large caps, small caps, international equities, real estate, and now commodities as well. But the year is not over just yet.
Here’s the silver lining: low-mid single digit losses in a growth portfolio are manageable (yes, they’re annoying and not at all fun, but the real fun in investing often tends to be delayed a bit). The one undisputable truth of capitalism is that market change is not only inevitable, but it is incredibly useful to those that can manage the risks along the way. When markets inevitably improve, the rebound the results from more efficient companies and more efficient risk-taking can lead to significant portfolio gains. We stand ready to adjust our current neutral posture either once again in favor of offensive investments or in favor of defensive investments with the goal of remaining “on the right side of the market.”
The recent takeover of Fannie Mae and Freddie Mac by the Federal Government is certainly being well received in the financial community, shareholders of those companies notwithstanding. It has often been said that markets hate uncertainty, and this bold action by the Treasury Department and with the blessing of the Federal Reserve may remove much of the uncertainty that has been hanging over the credit markets. Have we made a market bottom? We believe that it’s too soon to tell because the damage to the economy has yet to be healed by this singular action. However, doing nothing to stem the tide of further deterioration in the housing market really isn’t a viable option either. Time will tell if financial stocks can return to normalcy. If so, the rebound could be dramatic if sustained through the end of the year. The stronger dollar has certainly helped bring oil prices down a bit, and that can do a lot to ease the concerns of consumers (and voters).
For Investment Professionals
Appleton Group Wealth Management LLC is proud to support the good work that fee-based investment professionals do to help protect and grow their clients’ portfolios. We believe that the key to long-term investment success lies in a flexible approach to asset allocation, and that our firm’s suite of professionally managed core portfolios is an integral part of any well-diversified investment plan.
We have included current portfolio allocation data to our market commentary to give investors and their advisors a more in-depth look at our current market posture. Each of our professionally managed core portfolios uses The Appleton Group Wealth Management Discipline™, our proprietary research process that helps keep our current asset mix “on the right side of the market.” During cooperative market environments, more of the portfolios’ assets are systematically shifted toward growth investments, offering the potential for significant capital gains. During uncooperative market environments, more of the portfolios’ assets are systematically shifted toward defensive investments, offering the potential for significant asset protection. Since the inception of our core portfolios in year 2000, this flexible approach has resulted in meaningfully higher returns compared to the overall U.S. equity markets while at the same time offering the added benefit of significantly reduced market-related risk along the way (for complete portfolio performance information, please visit www.appletongrouponline.com).
What could be more important to your practice and to the lives of your investors?