The 10-year Treasury note sank…


The 10-year Treasury note sank to a 52-week week during the week and though the Dow Jones Industrial Average managed a gain, it remained locked in a tight trading range. The NASDAQ managed to climb back above its 50-day moving average (1679.92) by the end of the week to join the Dow near the top of its recent range and is flirting with a new 52-week high. After Thursday’s “blackout”, Friday’s option expiration was marred by low volume not seen since December 24, 2002. For the week the Dow moved above 9300 posting a gain of 130 points (+1.41%) and closed at 9321. The NASDAQ was able to reclaim 1700 and gained 58 points (+3.53%) to settle at 1702.

The percentage of bullish advisors remained in neutral ground at 52.0%, up from 51.5%. Readings over 55% are considered bearish. The put/call ratio eased to 1.24 down from last week’s 1.38 reading while the VIX volatility indicator slid to 20.51 down from last weeks 21.89. Readings under 20 are regarded as bearish. For the week ending August 13th, U.S. equity mutual funds had solid inflows of $3.5 billion compared to inflows of $359 million the previous week.


No changes to our models during the past week. With the exception of protective stop-loss orders that were triggered in late June and early July, there have been only minor adjustments made to our models since late March. This duration is considerably longer than we have experienced in the past three years suggesting that a more normalized and cooperative investment climate is emerging.

At the current time, institutional support for equities is relatively strong, setting the stage for a new bull market to emerge. Whether it does is anyone’s guess, and being properly and prudently positioned no matter what the outcome makes all the difference. Client portfolios are positioned to participate in the markets at the current time, taking advantage of improving corporate fundamentals, a strengthening economy and recent tax cuts. Until the trend changes, we are content to hold positions as the increases in portfolio valuations has been substantial. We remain confident that a reduced fixed income exposure is prudent at the current time, and we continue to favor equities over all other asset types.


One only has to look at the Fed Fund futures to catch a glimpse into the probable direction of the U.S. economy. This key indicator, driven largely by institutional traders and hedge funds clearly points to an improving economy. Currently at only 1.00%, the Fed Funds rate is set by Alan Greenspan’s Federal Open Market Committee as a way to either increase or decrease liquidity and access to short-term funds. The Fed Funds futures attempt to predict upcoming activity by the Fed, and may hold sway in determining what the Fed actually does. Looking out to 2005, the Fed Funds futures is predicting a likely rate of 3.00 – 3.75%, a substantially higher rate than today. This drastic change points to a stronger economy, and in turn points to lower prices for existing fixed income instruments (which move inversely to interest rates).

The Blackout of 2003 won’t exactly sink a U.S. economy on the verge of recovery, but it won’t exactly help, either. The largest power outage in U.S. history disrupted business in several cities in the northeastern United States, including New York, Detroit and Cleveland, affecting 50 million people, or about 17 percent of the total U.S. population. Though power had returned to many affected areas by Friday afternoon, the normal flow of business was still disrupted. And in Detroit and Cleveland the situation was more dire. Power was out until Sunday in Detroit, and many people in Cleveland were without running water. Though many factories, stores, restaurants and other businesses throughout the region lost at least one day of operation, many economists thought it unlikely that the blackout would do major damage to the total U.S. economy.

Lastly, U.S. industrial output in July posted its biggest gain since January, boosted by a big gain in utilities output and a third straight monthly rise in factory activity, the Federal Reserve said Friday. Production at factories, mines and utilities jumped a larger-than-expected 0.5 percent, the Fed said, its biggest rise since January’s 0.7 percent gain. Firms also ran at a slightly higher capacity in July. In the report, factory activity, which accounts for almost 85 percent of total industrial production, rose 0.2 percent. Utilities output surged 3.9 percent as a warmer July spurred demand for electricity while production in the mining sector dipped 0.4 percent. The report is the latest to show the hard-hit factory sector may finally be on the mend. In July, the Federal Reserve’s anecdotal “beige book” report on national economic conditions said there were “nascent signs” of recovery in manufacturing.

By | 2003-08-18T12:56:48+00:00 August 18th, 2003|Market and Portfolio Commentary|Comments Off on The 10-year Treasury note sank…

About the Author:

Mark’s commitment to objective, independent wealth management led him to establish The Appleton Group LLC in April of 2002. With over 19 years of experience in the financial services industry, Mark serves as portfolio manager for our private client group, and co-manages all assets held in our suite of portfolio offerings. His responsibilities include risk analysis, asset allocation, market research, and institutional client development. Mark also serves as both Principal and CEO of The Appleton Group LLC. He earned his Accredited Investment Fiduciary (AIF) designation in 2016