A bullish job report on Friday sent stocks higher in what had been a see-saw week with the major indexes remaining flat. The market continues to be fixated on sky high oil prices, Iraq and interest rate fears resulting in a lack of conviction from investors. For the week the Dow Jones Industrial Average gained 54 points (+0.53%) and closed at 10242.
The NASDAQ also remained flat early in the week before joining the Dow in Friday’s rally. However, Friday’s spurt wasn’t enough to erase the prior losses as the index dropped 8 points (-0.40%) for the period and closed at 1978, breaking its two week winning streak.
It should be noted that both the Dow (10254) and the NASDAQ (1976) crossed above their respective 50-day moving averages last week, a short-term positive condition. For the year, the Dow is down 2.0% while the NASDAQ is down 1.5%. Over the past few weeks, treasury prices have stabilized as new data has indicated a healthy but not overheating economy.
Market posture is slightly improved this week, as is sentiment and market momentum. Institutional investors have been more supportive of the markets over the past several weeks, surviving their recent test of key levels. This unusual condition, a strengthening of the markets going into the summer months, is worth noting. Over the past four years, the early summer months have demonstrated waning support, leading to flat to lower prices.
One note for the upcoming week: with the passing of former President Ronald Reagan, the markets will be closed Friday, June 11 in observance of his state funeral. The markets will re-open Monday, June 14.
THE COMPASS PORTFOLIOS
Significant revisions to our portfolios last week, as we have markedly reduced cash levels. Our models currently prescribe a more neutral asset allocation for our managed portfolios, still maintaining a cautious but more bullish allocation. We continue to avoid most fixed income, although much of the near-term damage appears to be done. As such, we believe there may actually be renewed value in very specific fixed income areas at the current levels, and we anticipate action being taken shortly.
The flexibility which exists in our portfolio management discipline gives significant advantages over conventional portfolio management styles. Because of our use of low-cost iShares to fund our client’s portfolios, we are able to make allocation adjustments quickly and efficiently. At an extreme, we can quickly introduce liquidity during period of market deterioration, and likewise we can quickly participate during periods of market strength. With commission rates for many clients now reduced by over 30%, the flexibility becomes even more of a value.
The economic recovery of the past eighteen months has led to significantly higher levels of prosperity than at any other point in history, says Briefing.com. Here are the broadest measures on income, growth, housing, and employment: