THE MARKETS
The Dow Jones Industrial Average was finally able to crawl back into the plus column for the year as the index posted gains for the third week in a row. The action was broad-based as the S&P-500 posted a three-year high while the Dow Jones Transportation and Utility Indexes are also at three-year highs. Only the Dow and the NASDAQ came up short on making new highs for the year. For the week, the Dow gained 152 points (+1.5%) and settled at 10539.
The NASDAQ, led by the technology sector, was higher for the fourth week in a row. This is the first time that the NASDAQ has put together a four week run this year. For the week, the NASDAQ gained 47 points (+2.3%) and closed at 2085.
The continued post-election rally has been broadly based, including large-mid-and small-caps, as well as both value and growth styles. For the week ending November 10th, U.S. equity mutual funds had inflows of $4.3 billion compared to inflows the previous week of $2.3 billion. The percentage of bullish investment advisors is the only indicator that is problematic, now standing at 58.1%. Readings over 55% are regarded as bearish.
THE COMPASS PORTFOLIOS
Flat out, the Compass Portfolios are hitting on all cylinders. Since the last week of October (just before the election) the Compass STAR and Compass STAR Plus Portfolios have powered ahead 7.90%, while the slightly more conservative Compass STAR Balanced portfolio is up 7.62%. While it is quite common for our managed portfolios to capture much if not all of the gains of the market during periods of sustained advance, the way in which the portfolios is participating is noteworthy: everything is working. When fully invested, we expect that the equity positions will capture all of the gains of the markets; however, we also expect that our managed income components (currently utilities and high-yield bonds) will lag. During the past three weeks, our Dow Jones Utility ETF is ahead by 8.40%, and the PIMCO High Yield Fund D is ahead by 1.50%. For the better part of the year, both of these positions have been well supported by the markets, and it certainly would have been expected that each would have performed less well (even depreciated) when the overall markets began to show signs of life. In summary, the remaining portfolio components are ahead anywhere from 5.70% to as much as 10.90% over the same period of time.
The next step, as always, is to take adequate measures to keep portfolio values as high as possible, while still allowing for continued participation should the advance continue. Put in context, the market advance has left most investors at or near breakeven for the year. Certainly not a rousing victory, but following the stellar advance of 2003, one would expect a bit of a pause. While one uncertainty has been lifted, others still remain including our mounting budget deficits, continued bloodshed in the middle east, the continued war on terror, a rising interest rate environment, and mounting inflationary pressures; certainly enough to keep an eye on. We pledge our continued best efforts to navigate these often tricky markets, and to ensure that our clients’ financial goals continue to be met on schedule.
THE ECONOMY
U.S. Treasury Secretary John Snow said yesterday that slashing a record budget deficit was a top priority for the second-term Bush administration and challenged Europe to play its part in helping trim the U.S. trade gap by boosting its own economic growth. “The current account deficit is a shared responsibility,” Snow said in prepared remarks for delivery to the Royal Institute of International Affairs, adding that Europe should introduce reforms to make itself a more attractive investment site through tax cuts and other measures, just as the United States needed to save more. Snow’s remarks were aimed at countering mounting European criticism that the United States was running up recklessly large budget and trade deficits that were putting the dollar’s value on the skids and hurting Europe’s prospects.
In related news, prices paid by consumers in October increased at a slightly faster pace than Wall Street expected, although it did not show the very high spike shown in wholesale prices in an earlier report. The Labor Department’s Consumer Price Index, the government’s main measure of inflation released Wednesday, rose 0.6 percent in October, compared with a 0.2 percent rise in September. Economists surveyed by Briefing.com forecast a 0.4 percent rise. Energy prices were the key factor in the price rise, as retail consumer prices were up 4.2 percent in the month that saw oil futures reach record levels. Gasoline prices rose 8.6 percent during the month and heating oil was up 8.1 percent.
