The stock market’s recent advance slowed a bit last week following the previous week’s surge as mixed earnings and economic reports kept the recent rally in-check. Blue chip stocks added +1.0% over the course of Wednesday and Thursday, fueled by gains in the financials and technology shares. Despite another big jump in oil prices and continued deterioration in consumer confidence, the Dow Jones Industrial Average added a late-day advance on Friday to chalk up its third consecutive daily gain. For the week, the Dow gained 43 points (+0.3%) closing at 12891.
The NASDAQ outperformed the blue chips on a relative basis led by renewed strength in Apple, Google and other technology names. The NASDAQ pushed higher for the fifth time in the last six weeks, gaining 20 points for the week (+0.80%), ending at 2422.
The Federal Reserve meets this week – it appears likely that they will lower interest rates one last time before pausing. Look for their statement to turn away from addressing credit worries and towards combating inflation.
The Appleton Group Composites™
A few weeks ago we wrote that there it appeared as though the markets were establishing a temporary bottom, evidenced by a strong positive shift in institutional sentiment. Since then, the markets have held nicely, and the more assertive posture we’ve taken since the end of March is benefitting our clients. Through Friday, The Appleton Group PLUS Portfolio, Tax Managed Growth Portfolio, Assertive Composite, Moderate Composite and Conservative Composite were all in positive territory for the year. If we really have a lasting bottom (made almost exactly at the end of the 1st quarter) we will be able to hold our offensive positions for an extended period of time. If the market bottom proves a mirage, we stand ready to adjust further towards a more neutral stance. So far this year, the volatility has benefitted tremendously.
Look for the Federal Reserve to shift its focus from the credit crunch and economic weakness to what is on a lot of consumer’s minds: inflation. There appears to be a bubble building in the commodities markets, with extremely weak valuation in the U.S. dollar contributing to an exponentially strong valuation for practically everything else that is sold in dollars: oil, wheat, corn, rice, gold and so on. Precious metals and steel probably don’t have the potential for a real shift in sentiment, but starvation does. With rice and wheat each up over 75% in the last year, the political pressure overseas to bring down prices is immense. This leads us to believe that we are likely to see a coordinated intervention by central banks to support the dollar, which would presumably in-turn bring commodity prices down as well. The imbalance that currently exists between reality and speculation in the commodity markets will need to be corrected; look for Chairman Bernanke to become as creative here as he has in dealing with the credit crunch.
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