THE MARKETS
The Dow Jones Industrial Average put together its second consecutive week of gains as strong economic reports pushed most of the major averages to new 52-week highs. Of note was the trading action of the S&P-500 on Monday, which saw the index break through 1060 and the NASDAQ composite briefly touch 2000. This represented a move to a significant resistance area and is a bullish indication going forward. A close below the 1060 level on the S&P 500 in the coming week would cause traders to re-evaluate the short-term direction of the market. For the week, the Dow gained 80 points (+0.82%) and closed at 9862. The NASDAQ struggled for most of the week as it lost 23 points (-1.17%) to close at 1937.
Retail sales numbers, the continued mutual fund trading scandal and normal jobless claims reports will continue to influence the markets, as will the issue of “year-end mutual fund window dressing.” As most money managers have demonstrated double-digit growth this year, keeping these gains intact will be of utmost importance heading into the end of the year. Expect some turbulence heading into December 31, just as we’ve experienced at the end of each previous quarter this year.
THE COMPASS PORTFOLIOS
No changes to our models again this week. Normal fluctuations in market indexes have been observed without defensive measures being prescribed. As the overall upward trend is still in place and only minor market deterioration has occurred, no portfolio changes have been prescribed. Solid double digit portfolio growth has been the norm this year with many client portfolios significantly outpacing both the market indexes and non-Appleton Group clients. Equity positions have performed as expected, as have our income components (mainly high-yielding corporate bonds and utility stocks).
Many of my clients may know that I drive a Toyota Prius, a next-generation full-sized sedan with hybrid fuel efficiency technology. One of the great features of this car is the in-dash computed display which calculates fuel efficiency “on the fly.” A great feature, which normally reaches 48-50 miles per gallon! I’ve noticed that recently we’ve only been able to achieve 42 miles per gallon due to the colder weather which requires us to keep the heater on (which is a drain on overall efficiency). I couldn’t help but think this morning on the way in that the results of my car are similar to the intended results of the Compass Wealth Management Discipline. Both are intended to get us where we’re going as efficiently and as quietly as possible. Each also addresses the concern for safety, with our car having all of the latest airbag and restraint technology and the wealth management process using tactical asset allocation to manage the risk of a “crash.” Just as the heater in our car can be a drain on efficiency, so too would a large bond position be a drain on the performance of our portfolios. Just another way to look at a process that makes sense for today’s world!
THE ECONOMY
The continued weak jobs market continues to overshadow evidence of an accelerating U.S. economy. The Labor Department said 365,000 people filed new claims for unemployment benefits in the week ended Nov. 29, compared with a revised reading of 354,000 in the prior week. Economists, on average, expected 354,000 new claims, according to Briefing.com. Last Friday the Labor Department reported a net increase of 56,000 new jobs, a positive result but significantly below economists’ estimate of 154,000 newly created jobs. The labor market has long been one of the weakest aspects of the U.S. economy. Even after the latest recession ended in November 2001, nearly a million jobs were lost during the longest stretch without job creation since World War II.
Ever vigilant for signs of inflation, the Federal Reserve may not act worried but one of Fed Chairman Alan Greenspan’s favorite economic indicators is flashing red. The price of scrap steel, which has historically worked well as an indicator of where the economy is headed, has shot up more than 40% the past year and is now trading near highs not seen since the mid-1990s. In the past, a sharp rise in scrap steel prices indicated that U.S. manufacturing demand was rising sharply. But today much of the demand is coming from overseas. The value of U.S. “ferrous waste and scrap” exports to China in the third quarter rose by more than 80% over the third quarter of last year, according to the Commerce Department. Schnitzer Steel, a major scrap metal player, said that it exported 373,000 tons of ferrous metal in its quarter ended Aug. 31, a 40% increase from what it shipped in the same period last year.
Perhaps Greenspan only needs to look at traditional Christmas gifts for true signs of inflation ☺. A partridge in a pear tree and five golden rings may be a bargain this year, but the price for seven swans a-swimming has gone through the roof, driving up the cost of the 12 days of Christmas by a record amount, according to an estimated cost of the holiday carol’s shopping list. PNC Advisors, and independent auditing firm has done an estimated Christmas Price Index each year since 1984. This year’s index put the cost of all 364 items mentioned in the song, along with all the repetitions, at $65,264, up 19% from a year earlier, the largest increase since the tongue-in-cheek index began.
