After reaching its highest level since March 5th of this year (on Thursday), the Dow Jones Industrial Average retreated on Friday losing 83 points and snapping a three-week winning streak. Stocks were jolted early in week on the heels of the largest monthly Producer Price Index (PPI) gain (+1.9%) in fourteen years. But even with another interest-rate hike looming, the bulls were able to rally the chips over the next two days before Friday’s decline wiped out the gains for the week. For the period, the Dow lost 82 points (-0.8%) and settled at 10456.
The NASDAQ, which topped 2100 on Thursday for the first time since January 27th ended the week with a minor loss after having posted four straight weekly gains. For the period, the index lost 15 points (-0.70%) and closed at 2070.
It has become our tradition at The Appleton Group to publish a Thanksgiving edition of our Weekly Market Comment, highlighting the things we at our firm are thankful for in each of the three areas we regularly discuss. So, here are the things I’m thankful for in The Markets: I’m thankful for active, liquid markets that allow for equality of opportunity; I’m thankful for investment vehicles such as Exchange Traded Funds and no-load mutual funds that enable us to invest with clarity, objectivity, and prudence; I’m thankful for a strong regulatory environment and zealous regulators that help to keep the markets open, honest, fair and free; I’m thankful that all market information is readily available, accurate, and can help us allocate capital intelligently and prudently; I’m thankful that no two years are ever the same.
THE COMPASS PORTFOLIOS
As we discussed last week, our more assertive asset allocations have powered ahead nicely over the past several weeks and continue to keep portfolio levels at yearly highs. We currently sport a 2% money market position, with all other assets being invested in portfolio maximums. Participation in the rally continues to be broad-based, with all equity components moving ahead nicely and with all managed income positions keeping pace as well. Our read of the current market environment continues to support the case for being fully invested, despite the significant run-up we’ve seen in the past several weeks. As always, should the market environment change, we can and will respond accordingly by harvesting profits as the need arises.
Here are the things I’m thankful for in my practice and in The Compass Portfolios: I’m thankful for the opportunity to serve an extremely engaging and interesting clientele (I can honestly say that I enjoy each and every one of my clients thoroughly, as each bring unique experiences to the table and each engage me in asking difficult questions); I am thankful for the enormous responsibility my clients have placed on me, and for the opportunity to meet these responsibilities through a disciplined approach to wealth management; I’m thankful for continued support from all of our third-party service providers, especially our corporate counsel (Godfrey & Kahn S.C.) our accounting staff (Schenck Business Solutions), our primary custodians (Fiduciary Partners Inc. and Charles Schwab & Co.), our outstanding facilities provider (Pfefferle Investments), and our banker (The Business Bank of the Fox River Valley). Thanks also to Gloria Catter, my right arm, who does so much administratively and technologically that I don’t always see – she makes my life and the lives of my clients so easy; Of course, I give thanks mostly to my wife Karen and my son Will who continue to support me in my quest to build and maintain an outstanding wealth management firm.
Friday’s market dip was a direct result of Fed Chairman Alan Greenspan’s most direct warning yet on the topic of the ballooning U.S. budget and trade deficits. Greenspan warned that ballooning deficits in trade and other financial flows — summed up as the current account deficit — will keep putting pressure on the dollar. “It seems persuasive that, given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point. But when, through what channels, and from what level of the dollar? Regrettably, no answer to those questions is convincing. This is a reason that forecasting the exchange rate for the dollar and other major currencies is problematic,” said Greenspan. In plain English, the dollar will continue to get weaker (contrary to the official Washington policy) if the U.S. can’t put a handle on its budget deficit.
In The Economy I’m thankful for: plain warnings that deficits do indeed matter, despite political wrangling to the contrary; I’m thankful for a balanced economy, I’m thankful that economic expansion and contractions are normal and healthy; I’m thankful that the U.S. economy is not Japan; I’m thankful that forward-thinking economists are able to take objective positions on the issues.