Despite another round of positive economic news, the market sold off for the second week in a row. The decline was across the board as stocks buckled under the weight of ongoing terrorist attacks abroad. For the week, the Dow Jones Industrial Average, which fell below its 50-day moving average, lost 140 points (-1.43%) and closed at 9628. The NASDAQ traded in tandem as it also dropped below its 50-day losing 37 points (-1.92%) to close at 1893. For the year the Dow is up 16.2% while the NASDAQ has gained 41.5%.
The percentage of bullish investment advisors (a contra-indicator) remains bearish at 57.3% matching last week’s reading. For the week ending November 19th, U.S. equity mutual funds had inflows of $3.5 billion also matching readings from the previous week.
THE COMPASS PORTFOLIOS
No changes to our models again this week. The lengthy stretch without significant trading activity is unprecedented, and speaks to the stability of the current rally. Downgrades could be triggered shortly if the trend should weaken, but for the time being the markets have demonstrated just enough support to fend off defensive measures. Put simply, there is no need to sell positions at the current time. We will continue to be alert for any sustained weakness between now and the end of the year, standing guard to protect what has been a fruitful year.
Thanksgiving week is upon us once again, and last year’s Weekly Market Commentary offered me the opportunity to express thanks for so many of the riches I may take for granted during the course of the year. In as much as one can have a tradition in a firm as young as ours, I traditionally like to give thanks for many of the blessings I receive. Here’s this year’s list:
- First, I give thanks for the infinite support and faith I receive from my wife, Karen and my son Will. They are everything to me, and the sacrifices they each made to help me realize my dream of establishing my own firm continues to mean so much. Thank you!
- Second, I give thanks for the privilege of serving such an enjoyable, diverse, and engaging clientele. I can say that I truly like every one of my clients, and that each offers me a unique perspective that helps me to grow as a person and as a professional. I look forward to serving them in the years to come, and I pledge my best efforts to continuing to meet their high expectations.
- Third, I give thanks for the many professionals who tirelessly support my firm, especially Gloria Catter, my executive assistant, who continues to amaze me with her dedication, creativity, accuracy and foresight. I also thank the professional staffs of Charles Schwab Institutional and Fiduciary Partners Inc. who serve my clients objectively, honestly, and prudently. Thanks also go to our team of accountants, attorneys, tax professionals, institutional traders, auditors, regulators and advocates-at-large!
The biggest influences on the economy heading into the end of the year continue to be the weakness of the U.S. Dollar, an improving jobs market, and robust economic growth. The dollar has weakened significantly over the course of the year, now trading at approximately $1.19 to the Euro (a year ago they traded at about even). This weakness is a double edged sword, making it easier for manufacturers to sell goods overseas (i.e. autos, computers, grain, etc.), but more expensive to purchase goods from abroad (i.e. textiles, imported oil, etc.). The Bush Administration’s decision on Nov. 19 to impose temporary quotas on some textiles from China caused consternation in financial markets. Nowhere was this more evident than in foreign exchange, where the U.S. dollar sank vs. other major currencies as investors worried that the move was the opening salvo of a broader protectionist push. The White House’s apparent aim: saving jobs in key manufacturing states ahead of the 2004 Presidential election season.
The key trade test for the Bush Administration and the U.S. dollar will be the President’s decision on whether to lift or roll back tariffs on imported steel — or leave them in place for another year, as U.S. producers would like. The clock is ticking down to a mid-December face-off, when European trade officials threaten to impose countervailing duties on U.S. goods unless the tariffs are reduced. The noises from the European Union come after the World Trade Organization ruled earlier in November that the tariffs imposed by the White House in March, 2003, were illegal. The stakes may be higher this time around. The current trade tiffs come as a weakened dollar is causing global currency markets to fret about how the U.S. will continue to fund its huge twin deficits — the overall budget gap and the trade imbalance — at a time of comparatively low interest rates and a fresh wave of U.S. financial scandals. Indeed, no less a figure than Federal Reserve Chairman Alan Greenspan entered the debate on Nov. 20, attacking “creeping protectionism” from Congress and the Commerce Dept.’s ruling to cap Chinese textiles imports.