The market extended its losing streak to six weeks in a row as both the DJIA and NASDAQ recorded four-year lows during a volatile week of trading. Increasing concerns over the effects of war coupled with a steady stream of earnings warnings kept buyers on the sidelines. The Dow Jones Industrial Average, which closed at a four-year low on Monday, gained over 340 points on Tuesday but then traded lower for the remainder of the week. The low recorded by the Dow on Monday was the second non-confirmed low recorded in the last two weeks. None of the other broader market averages with the exception of the NASDAQ scored four-year lows during the week. This is regarded as bullish divergence and is positive for the market over the near term. For the period the Dow lost 173 points (-2.3%) and settled at 7528.
As noted above, the NASDAQ continued to get hammered last week as Cisco closed below $10 while Intel traded below $14. The index recorded new four-year lows on four of the five trading days and ended the week at 1140 down 59 points (-4.9%).
JP Morgan issued a bearish note on stocks Tuesday, but the market pushed ahead anyway. The firm has a year-end 2003 target for the S&P 500 of 800 (its current level) on the belief that the earnings outlook will remain weak. Most brokerages firms had been overly optimistic in the waning years of the bull market, and it may be difficult for many investors to believe a firm identifying the bottom of the market when it did such a poor job of identifying the top of the market.
And you thought you had a bad day, a slip of the finger led Bear Stearns Cos. Inc. to erroneously enter an order to sell nearly $4 billion worth of stocks Wednesday, fueling an already tumbling market. The order came about 20 minutes before the closing bell was the result of a “clerical error” and should have been entered as $4 million, the New York Stock Exchange stated. All but $622 million of the order was canceled before execution.
THE COMPASS PORTFOLIOS
No changes to our already reduced positions this week. We continue to be defensive, with an overweighting on bonds and money market securities. Positions in large and small cap growth companies have remained invested, although with negative results. Institutional support for the growth segments of the market has been neutral, prompting a continued the continued recommendation to hold relatively small positions.
I would like to draw the reader’s attention to the quarter-end results for the indexes we track. This data is extremely useful when measuring the value our process adds when compared to simply buying and holding a particular investment, as many financial advisors advocate:
INDEX 7/1/2002 – 9/30/2002
S&P 500 -17.63%
Dow Jones Industrial Avg. -17.87%
NASDAQ 100 -20.82%
Russell 2000 Growth -21.21%
Russell 2000 Value -20.89%
The presence of large cash and bond positions in most client account has helped to keep total portfolio losses to only single digits. While perhaps cold comfort (everyone wants gains all of the time, right?), the dismal investment market has not wreaked the sort of havoc many investors are experiencing. That being said, continued losses (manageable as they may be), are difficult to stomach, and we will continuously review our processes to determine if any additional steps can be taken. We remain committed to managing client assets with risk management as our primary goal, and we are committed to serving our clients consistently and professionally through these difficult economic times.
For our clients: Gloria will be calling you within the next few days (if she hasn’t already contacted you) to set up your quarterly review. I look forward to meeting with all of you over the next month to review your portfolios, and I invite you to speak candidly with me about your ongoing financial goals (short-term and long-term).
On the economic front, the Institute for Supply Management index came in at 49.5% for Sept; though below the 51.0% consensus, this consensus was most likely overstated in the wake of yesterday’s weak Chicago Purchasing Managers Index reading. The closely watched orders index actually improved to 50.2% from 49.7% in Aug. The Construction spending data was near expectations. Auto sales for Sept were better than expected as the group was strong: Daimler Chrysler +8%, General Motors +5%.
The Labor Department said unemployment fell to 5.6 percent in September, compared with 5.7 percent in August. But employers cut 43,000 jobs from payrolls in September after adding an upwardly revised 107,000 jobs in August. Economists, on average, expected an unemployment rate of 5.9 percent and job growth of 6,000 jobs. All in all, this is not an exceptionally strong report by any stretch, but it is better than had been expected following the rising claims trend in September.