THE MARKETS
A shortened week saw stocks continue to power ahead as sharp declines in oil prices set the stage for the advance. On Monday, the Dow Jones Industrial Average jumped 148.26 points (1.5%) which was the third largest gain of the year. The remainder of the week was relatively flat but Monday’s gains were sufficient to put the index in the green for the third week in a row. For the period, the Dow gained 168 points (+1.64%) and closed at 10410. The NASDAQ’s performance wasn’t as good but the index also managed to finish in the plus column. For the week, the NASDAQ gained 21 points (+1.06%) and closed at 1999.
The percentage of bullish investment advisors remained neutral at 49.5% up a touch from last week’s 45.1% reading. Readings over 55% are regarded as a bearish condition. Mutual fund inflows continue to be healthy, with $1.44 billion recorded for the week ending June 9th.
The upcoming week will continue to focus on three unresolved issues: the upcoming power shift in Iraq, a rising interest rate environment, and fears over higher inflation. In addition, we are quickly approaching the end of what continues to be a volatile but flat quarter.
THE COMPASS PORTFOLIOS
Additional upgrades have quickly brought our portfolio allocations back to the offensive side of the table. We now hold significantly less cash than we did just two weeks ago, reflecting a rather abrupt shift in institutional support for both equities and for select fixed income segments. Actively managed portfolios have been realigned to reflect this renewed support. While we remain cautious, the markets have successfully retested their yearly lows, adding an additional level of support to a market that has lacked direction for much of the year. As we are always concerned about the amount of risk we expose our clients to, this successful retest of the yearly lows is encouraging. That being said, we don’t believe the summer months will lead to significant progress, but the healthier environment means a much more accommodative risk/reward profile.
THE ECONOMY
The Federal Reserve’s Open Market Committee meeting scheduled for June 29-30 will be as closely watched as any other Fed meeting in recent memory. Markets still believe the Fed will raise rates just a quarter percentage point at its next policy meeting, and there are several reasons to believe that will be the case:
