THE MARKETS
Stock market historians are quick to point out that September is the weakest performing month of the year. If last week’s action is an indication of what lies ahead, history may have to be rewritten. Both the Dow Jones Industrial Average and the NASDAQ came out of the shoot following the Labor Day weekend posting new recovery highs for three days in a row. As of the close on Thursday, the NASDAQ was up for seven sessions in a row, something it hasn’t done in more than three years. The only major index not joining in the rally was the DJ Utilities.
Despite Friday’s sell off, the Dow gained 88 points for the week (+0.93%) and closed at 9503. The NASDAQ topped a 17-month high as it gained 48 points (+2.65%) and closed at 1858.
Momentum and institutional sentiment, while improving, continues to be neutral, as is the current strength of the rally. The percentage of bullish investment advisors continues to be bearish at 55.5, down a touch from last week’s bearish 56.0% reading. Conversely, the put/call ratio slipped to a neutral 1.50, down from last week’s bullish 1.79. For the week ending September 3, 2003, U.S. equity mutual funds had inflows of $4.2 billion compared to inflows of $1.5 billion the previous week. This was the highest level of inflows since April 2002.
THE COMPASS PORTFOLIOS
The institutional volume has picked up as anticipated following the Labor Day weekend, and so too has the volatility. Our portfolio posture continues to be bullish, a prudent posture given the fact that volatility itself isn’t necessarily bad, so long as the direction continues upwards! Our portfolio management process has continued to serve our clients extremely well during the current quarter, adding to the gains experienced during the second quarter.
We believe our signature offering, the Compass Wealth Management Process, is more critically needed than ever as the recent surge in the markets creates valuations that are increasingly rich. Our process begins with objective prescriptions for allocating assets either to offensive or suitably defensive instruments. This process allows us to prudently and systematically add to positions when the likelihood of market advance is high, and reduce positions when market weakness prescribes defensive action. Should the markets run out of steam, the paper gains of traditionally managed portfolios will quickly dissolve and result in yet additional disappointment to investors. Aside from The Compass Wealth Management Process, no other process has demonstrated the ability to consistently allocate assets such that portfolios are on “the right side of the market.”
THE ECONOMY
Employers slashed nearly 100,000 jobs in August, the government said Friday, defying private economists’ forecasts for an increase and highlighting fears that the labor market could be slow to catch up to stronger growth in the rest of the economy. Payrolls shrank by 93,000 jobs outside the farm sector, the Labor Department said last Friday, after falling a revised 49,000 jobs in July. Economists had expected payrolls to grow, according to a Reuters poll. The number of jobs lost was the biggest since 151,000 in March.
Robert Parry, the president of the San Francisco Federal Reserve Bank, said Thursday that in the unlikely event that economic growth disappoints, the central bank could still cut interest rates. “If the economy were to underperform, we have room to cut rates,” Parry told reporters after a speech, though he stressed that he thought this was unlikely. Parry, a voting member of the Fed’s policy committee, said economic growth in the 4.5 percent range next year would not use up all the spare capacity in labor markets and factories.
Oil prices slipped Friday as peak summer driving season came to a close and domestic petroleum supplies grew slightly. Markets slumped nearly 9 percent on the week, shortened one session by the Labor Day holiday, amid signs that tight supplies in the world’s top consumer, the United States, have eased and that Iraqi output is starting to recover six months after the U.S.-led invasion. Having peaked at nearly $32 a barrel last month, light crude oil for October delivery settled at $28.88 a barrel on the New York Mercantile Exchange, down 10 cents on the day. London Brent crude for November delivery settled 28 cents weaker at $26.95. The U.S. market is key to global petroleum prices as it consumes some 25 percent of the world’s oil.
