Once again the market was on hold last week as investors focused on the Iraq standoff. Although rumors about Bin Laden’s capture occasionally woke up the bulls, the market was on a steady decline. On Thursday, the Dow closed at its lowest level in five months. The major averages now look poised to temporarily retest the October lows. For the week, the Dow lost 151 points (-1.93%) and closed at 7740. The NASDAQ followed the Dow lower losing 32 points (-2.39%) and finished at 1305. For the period ending 03/05/03, cash outflows from equity mutual funds totaled $3.7 billion compared to outflows of $2.6 billion the previous week.
War talk will continue to dominate the market coverage this week. Traders are watching for the latest developments at the U.N., which is moving toward a vote this week on an Iraq war. Sec. of State Colin Powell said he may be able to garner a majority in a vote that could come as soon as Tuesday, but that would be moot if French veto threats are carried out. Separately, North Korea tested another missile in the Sea of Japan this past weekend.
THE COMPASS PORTFOLIOS
“Jump ahead to the good part.” This is what my 16 month old son seems to be saying in his own way when we read a book that kind of plods along. Readers like a good story, and in a good novel the resolution of the plot is often made better by slowly increasing the tension until the reader just can’t stand it any more. Then, resolution hits, and boy does that feel great after the long, drawn-out buildup.
What an unfortunate epic the world is living right now! We’ve got “good vs. evil,” danger, secrecy, and power. With so much of the tension building, I know I can’t wait to see how it ends. The “good part” for investors comes only after the tension of the bear market has been released. While the lack of predictability can test even the most patient investors, our investment process prefers sideways movement to the anguish of significant losses. The “good part” of the Compass Wealth Management Process is two-fold: significantly better downside protection when the markets are at their worst, and significant participation when the markets are at their best. I firmly believe the best is yet to come, but for now, we’re still in the heart of the novel, and resolution appears to be only a page or two away. That being said, we remain cautious, still maintaining significant positions in utilities, bonds, money market securities, and dividend paying indexes.
Employers cut 308,000 jobs from their payrolls last month, the Labor Department said, while economists surveyed by Reuters were expecting them to add 8,000. The unemployment rate rose to 5.8 percent last month, up from 5.7 percent the previous month, although less than the 5.9 percent economists were expecting. The Labor Department said the number of Americans filing new claims for unemployment benefits rose to 430,000 in the week ended March 1 from a revised 418,000 the prior week. Any number above 400,000 is generally considered to indicate a deteriorating labor market. The news followed Thursday’s poor weekly jobless claims and retail sales numbers, further unnerving investors about the state of the U.S. economy.
The U.S. economy was stuck in low gear in late January and the first three weeks of February, weighed down by worries over the economy and a possible war, a Federal Reserve report said on Wednesday. “Reports from the twelve Federal Reserve Districts generally suggested that growth in economic activity remained subdued in January and February,” according to the Fed’s “beige book,” an anecdotal summary of economic conditions around the country.
“Many reports indicated that geopolitical and economic uncertainties were constraining consumer and business spending and tempering near-term expectations,” the report said. The Fed has often used the phrase “geopolitical uncertainties” to refer to the possibility of a war with Iraq. The report also said consumer spending was weak in recent weeks, and businesses were wary of adding permanent workers to their payrolls. Manufacturing was described as “weak or lackluster,” but in a positive note, the Fed said six of the 12 Fed regions reported “some degree” of improvement.”