THE MARKETS
The holiday-shortened week saw wild volatility come back to the market as the Dow Jones Industrial Average experienced triple digit moves on two of the four trading days. For the week, the Dow gained 91 points and closed at 8895, a 1.0% gain. The NASDAQ followed suit as it gained 11 points for the week and settled at 1479 (+0.7%).
On Wednesday, the NASDAQ closed at 1467.94 which was a gain of 373.83 points (+33%) off the October 9, 2002 low (1114.11). The October 9th low was a 6-year low for the NASDAQ. Despite this impressive run, the NASDAQ is down 24% for the year and 71% from the March 2000 record high.
For the period ending November 26, mutual fund inflows totaled $3.5 billion compared to outflows of $2.2 billion the previous week.
THE COMPASS PORTFOLIOS
No changes to our models during the shortened holiday week. We continue to ride the rising market, and we are reluctant to recommend any sort of profit-taking at this time. However, we realize that the market may soon need a breather, and investors will want to prepare for the possibility of modest pullbacks from time to time.
THE ECONOMY
In just two trading sessions last week, economists received updates on no fewer than a dozen economic reports and the Federal Reserve’s Beige Book on economic conditions. Each is critically relevant to understanding the economic recovery process. And in keeping with the festive nature of Thanksgiving, there was little indication that moderation or retrenching was likely. In fact, the data overwhelmingly suggested that the recovery is imminent. Given recent data, many economists are likely to increase their GDP estimates for the current quarter.
The first sign of fourth quarter spending was an impressive 0.4% gain during October – the biggest gain in three months — implying that solid economic fundamentals are still fueling consumption expenditures. It’s tough to bet against the consumer equipped with rising incomes, low interest rates and contained prices. Since that combination seems impossible to beat, there’s no use believing that the consumer will fray now.
Perhaps the greatest sign of an outright recovery is the fact that the two monthly surveys of consumer attitudes took a turn for the best. The Conference Board reported an increase in its monthly Consumer Confidence Index – the first increase in six months — to 84.1 this month from last month’s 79.6 reading. Similarly, the University of Michigan’s Sentiment Index increased to 84.2 in November from 80.6 in October. This confidence turnaround isn’t all that surprising given the latest trends in the labor market.
The labor market appears to be on the mend, with initial claims for unemployment benefit insurance convincingly lower than the 400,000 level that economists usually equate with recession. First-time jobless claims fell to a seasonally adjusted annual rate of 364,000 during the week ended November 23, from 381,000 during the previous week. The total was the lowest since the 355,000 reported in February 2001, when the economy was in the initial stages of recession.
