The markets continued to be held hostage by the latest war news last week as the Dow Jones Industrial Average and NASDAQ closed the month on a negative note. February’s decline marked the third consecutive month that the Dow finished in the red. For the week, the Dow lost 127 points (-1.58%) and closed at 7891. The NASDAQ traded in a tight range as it lost 12 points (-0.89%) and finished at 1337.
The percentage of bullish investment advisors continued to slip as it declined to 40.4% down from last week’s 41.6%. Readings under 40% are bullish. For the seven-day period ending February 26th, mutual fund cash outflows totaled $ 2.6 billion compared to inflows of $748 million the previous week.
Over the weekend, the U.S. government reported the arrest of a key al Qaeda leader in Pakistan. Khalid Sheikh Mohammed is believed to be one of the engineers of the September 11 attacks. Reports indicate a significant amount of intelligence has been gathered after the arrest, in the form of laptop computers and documents. The markets are also expected to find hope in news that Iraq is destroying some if its missiles and agreed to submit a report on its stock of biological warfare agents in a week.
THE COMPASS PORTFOLIOS
No changes to our models last week. We continue to be cautious, with client accounts holding significant amounts of bonds, money market assets, and high yielding securities. The current market environment is proving to be extremely challenging, with overhanging geopolitical issues juxtaposed with the potential for resolution and a quick return to normalized markets. We continue to balance risk with reward, and with doing too much versus doing too little. We believe our current posture is prudent, and manages the twin risks of being exposed to too much risk or not being exposed to enough risk.
Our quantitative process dives deep into the root causes of market advances and declines, asking the all important question: “What are institutional investors doing with their money?” This is a critical question, because the equities markets are, at their core, driven by supply and demand. If there is an oversupply of equities (few buyers, many sellers), equity prices are likely to decline. On the other hand, if there is an overdemand for equities, (few sellers, many buyers), prices are likely to advance. While buying and selling activity on the part of institutional money managers is driven in large part by earnings and profits, it can also be driven by the same human emotions that you and I have to deal with, namely fear, hope and greed. Minimizing these emotions through a quantitative process (The Compass Wealth Management System), is the key to long-term successful investing, and the key to comfortably participating in the markets of today and tomorrow.
The pace of new home sales in the United States plunged in January, the government said Thursday, as the housing market, one of the few bright spots in an otherwise murky economy, showed signs of strain. The Commerce Department said the pace of new home sales fell 15.1% to a seasonally adjusted annual rate of 914,000 units from a revised rate of 1.08 million units in December. Economists, on average, expected a pace of 1.05 million units
U.S. manufacturers kicked off the New Year on a positive note as January orders for durable goods posted their biggest monthly jump since July, the government reported Thursday. The Commerce Department said new orders for durable goods — those meant to last three or more years — advanced 3.3% in the month, a stronger showing than Wall Street analysts had expected. December durable goods orders were revised to a 0.4% decline from the previously reported 0.2% drop.
The Labor Department said the number of Americans filing new claims for unemployment benefits rose to 417,000 in the week ended Feb. 22 from a revised 406,000 the prior week. Many economists think any number of claims over 400,000 indicates a labor market that is worsening. Economists, on average, expected 390,000 new claims last week, according to Briefing.com.