After the Dow Jones Industrial Average briefly touched the 10,000 line on Wednesday, investors turned their focus to upcoming earnings and put together a rally to close out the week. Thursday’s 170 point gain for the Dow was the largest point gain since October 2003. Friday’s choppy action ended with little conviction as the week ended with the Dow gaining 26 points (+0.26%) and settling at 10212.
The NASDAQ found investors eager to buy tech stocks after the early week sell-off. Thursday’s 57 point gain was the largest point gain since March 2003, the start of last year’s big rally. Early in the week the NASDAQ tested its 200-day moving average at 1885 and was able to hold. For the week, the NASDAQ gained 20 points (+1.03%) and closed at 1960. For the year, the Dow is down 2.30% while the NASDAQ has lost 2.40% of its value.
Mutual fund inflows for the period ending March 24th stood at a respectable $580 million compared to outflows of just $22 million the previous week. While market volatility has certainly returned, investment advisor bullishness has softened with a reading of 45.5%. This is actually a good sign for the markets, and may indicate a more solid footing for the markets going forward.
THE COMPASS PORTFOLIOS
With the exception of Thursday’s surprise advance, the week went pretty much as expected. Our defensive stance, taken in response to growing volatility and market weakness, has benefited clients by protecting both principal and the gains from last year’s advance. Our models continue to urge caution, and so we choose to only expose client portfolios to reasonable risks (such as stock indexes that pay significant dividends such as utilities, bank stocks, etc.). Given that the market may be able to find its footing, this posture may prove too defensive and opportunities for further advances could be missed. That being said, our protective posture has still yielded positive results to date, and being too cautions, I believe, is better than the alternative.
The crux of the issue is always the same: Given what we know about the current state of the markets, how much risk should we expose our clients to? This is a critical question, and one that needs to be asked on a daily basis. Given the uncertainties of the markets and the need for capital growth over time, our disciplined wealth management process continues to serve us well. However, responding flexibly and prudently to emerging trends means that we can easily eliminate positions in the face of further weakness or increase positions in response to renewed strength.
New jobless claims were little changed last week, the government said Thursday, coming in near Wall Street forecasts and raising some hopes for a strong monthly jobs report next week. The Labor Department said 339,000 people filed new claims for state unemployment benefits in the week ended March 20, compared with a revised 338,000 the prior week. But both those figures came in lower than the readings from the past few weeks. The March 13th week’s report was the lowest number of new claims since Jan. 13, 2001, when the number of new claims was only 316,000. Economists, on average, expected 338,000 new claims last week, according to Briefing.com.
The spending and income of U.S. consumers rose in February, the government said Friday in a report that missed Wall Street forecasts — with income more than expected and spending less. Spending by consumers, which accounts for about 70 percent of the nation’s economic activity, rose 0.2 percent after rising a revised 0.5 percent in January, the Commerce Department said. Personal income rose 0.4 percent after rising a revised 0.3 percent in January.
On Thursday, The U.S. House of Representatives passed by a close vote a $2.41 trillion 2005 budget that roughly sticks to President George W. Bush’s election-year spending requests and acts slightly faster to rein in the record federal deficit. The budget blueprint fully funds Bush’s request for defense spending but includes a slimmed down package of tax breaks. Lawmakers knocked down three alternatives put forward by Democrats and one introduced by a group of conservative Republicans to narrowly approve the budget by 215 votes to 212. The House plan envisions reducing the deficit to $377 billion in 2005 and cutting it in half in four years. Bush’s plan suggested halving the deficit in five years.