THE MARKETS
A holiday shortened week gave traders a mixed bag of goodies including a drop in jobless claims, an unexpected dip in durable-goods orders and a few complaints about the Christmas shopping season. Amid low volume, the Dow Jones Industrial Average gained 46 points (+0.45%) for the week and closed at 10324, up for a fifth week in a row. The NASDAQ gained 22 points (+1.13%) to close at 1973.
Year-end window dressing by mutual fund companies along with a lack of tax-loss selling (few stocks have declined this year) have continued to support 2003’s stock market rally. Bonds continue to lag, as does cash and money-market securities. While momentum and sentiment indicators continue to be neutral, U.S. equity mutual funds inflows show continued strength with an additional $1.3 billion added last week compared to inflows of $1.9 billion the previous week.
THE COMPASS PORTFOLIOS
No changes to our models once again as the supportive trend has remained in place over the holiday season. Our quantitative models have actually shown improvement for all market segments, signaling a likelihood of continued advances into the New Year. While the markets have appreciated nicely during the course of the year, the bull market can only end when institutional investors begin to demonstrate less support for equities. So far, that hasn’t happened. As a result of our prudently assertive asset allocation, client portfolios continue to add to their sizable gains.
One only has to look back to Lambeau Field yesterday to see the importance of recognizing what can be controlled and what must be left to fate. As many of you know, the Packers were facing elimination from the playoffs unless they could muster a win against the Denver Broncos, a formidable opponent, and also see the Minnesota Vikings lose to a struggling Arizona Cardinals team. The Packers took care of business on the field, placing themselves in a position to benefit from a set of circumstances that were completely out of their control. The Vikings fell in the end, and the Packers were positioned to take advantage of it. So it goes with the Compass Wealth Management Discipline, which strives to position client assets to take advantage of whatever circumstances may play themselves out in the markets. As it is impossible to control the direction and depth of the markets (how high/low can it go?), the only thing left to control is how we respond to the markets. Being allocated prudently for a significant market rise (but not knowing how far it could go) has greatly benefited all of our clients this year. Eventually positioning our clients prudently if and when the trend should change will be the important task of 2004. As for the Packers, we’ll find out next week…
THE ECONOMY
The biggest headline of the week was the discovery of a mad cow infection in Washington State on Christmas Eve. The diseased animal was tested for mad cow disease on Dec. 9, and a positive result was disclosed by the U.S. Department of Agriculture on December 24th. Officials from the Agriculture Department said Sunday that meat from the cow has been distributed to eight Western states and the territory of Guam. About five tons of meat from the Washington state processing plant where the diseased cow was slaughtered have been recalled, with officials saying there’s just about no risk to humans from the disease.
In other economic news, The Economic Cycle Research Institute, an independent forecasting group, said its leading index slipped mildly to 130.5 in the week ended Dec. 19, from 131.2 the preceding week. The growth rate, an annualized rate for the four-week moving average that evens out weekly fluctuations, fell to a five-month low of 10.4% from 11.3%. Readings above 3.0% indicate robust leading economic activity.
Lastly, The Conference Board said last week that its employment barometer climbed to 39 in November from 37 in October. A year earlier, the index stood at 40. “The labor market is finally sparking to life,” said Ken Goldstein, an economist at the private economic research group. The Conference Board compiles its index by surveying help-wanted ad volume at 51 newspapers across the country each month.
