3rd Quarter, 2004 Newsletter
Should investors be paying attention to the bull and the bear or the donkey and the elephant? At this time during every presidential
election year many have a tendency to turn their attention to the political pundits for some insight into what the White House might offer
their portfolio. Polls are being watched closely and much discussion and debate revolves around how President Bush or Senator Kerry
will impact the markets. Although it is too early to weigh in on stock market performance for the current administration, we do know that
dating back to 1932 there have been only two presidential terms where the stock market lost money – the Hoover administration during
the Great Depression and under Franklin Roosevelt in the late 1930’s. Each of the subsequent 15 presidential terms over the past 60+
years produced positive returns for the stock market . This suggests that our investment focus should remain on the bull and the bear,
as the donkey and the elephant have both been beneficial to the stock market.
Source: Wilshire Associates
Past performance is no guarantee of future results. Investors cannot invest directly in an index.
The markets seemed preoccupied with oil rather than politics during the third quarter. Hurricane Ivan, Nigerian rebels and continued
unrest in the Middle East combined to push oil prices beyond $50 per barrel during the quarter . The impact of high oil prices on
consumer spending is of significant importance to the equity markets. As consumers allocate more resources to fuel consumption there
is less discretionary income available to spend on other goods and services. This brought some concern to the markets over the
quarter, as evidenced by the equity index returns presented above.
The Fed acted twice during the quarter, pushing short-term interest rates up in 25 basis point increments to 1.75% . The tightening of
monetary policy had a calming influence in the bond market where longer-term interest rates declined significantly. Many bond
investors feel the upward trend in short-term rates should keep inflation near current levels. If they are right, future coupon payments
received by bond investors should not have diminished purchasing power. This attraction brought increased demand for bonds over
the quarter, pushing the bond market higher.
The state of the U.S. economy remains strong as we move into the fourth quarter of 2004. Most notable areas of economic strength
are the manufacturing and housing sectors. Both durable goods orders and new home sales maintained positive momentum over the
quarter past. And new building permits continued to be issued at a robust pace, suggesting little in the way of a slowdown in the
housing market . Consumer sentiment declined marginally during the quarter, holding back growth in retail sales . This prompted Fed
Chairman Greenspan to suggest in July that the economy had entered a “soft patch”. The soft patch was very short lived, as by mid-
September the Chairman stated the economy had regained momentum, allowing for the continued tightening of monetary policy.
The months ahead should be fascinating. The uncertain political landscape and active fuel prices may increase market volatility over
the near-term. Those in the high-risk game of making short-term market bets may have a bit more to work with over the fourth quarter.
This will have little impact on our focus as fundamental investors as the long-term opportunity in the market remains unchanged.
All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to
participate in any particular trading strategy. The Money Alert does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any
information prepared by any unaffiliated third party, whether linked to this web site or incorporated herein, and takes no responsibility. All such information is provided solely for
convenience purposes only. The Money Alert is not affiliated with any of the firms or entities listed unless specifically stated. The Money Alert does not provide investment, tax or legal
advice. Please consult the appropriate professional regarding your personal situation.
Copyright © 2010 The Money Alert.com. All rights reserved.