4th Quarter 2003 Newsletter
“Success begets more success” as the saying goes. This sentiment can also be applied to the financial markets during the Fourth Quarter of
2003 following two consecutive quarters of positive returns. Equity markets, as measured by the S&P 500 Index, rose 12.18% for the Fourth
Quarter and closed out the year with a strong 28.69% return. Fixed income returned 0.32% for the quarter but gained 4.10% for the year as
measured by the Lehman Bros. Aggregate Bond Index. The MSCI-EAFE Index climbed 16.80% for the quarter and 35.28% for all of 2003 – an
indication that the global economy is also finally recovering or expected to recover. These figures seem to suggest that the economic horizon is
indeed brighter today than in the recent past.

















Past performance is no guarantee of future results.        
Source:Frank Russell, S&P and 3rd party websites   
     

And what about that brighter economic horizon?
Real GDP growth in the U.S. grew 8.2% in Q3 2003 compared with a 3.1% gain in Q2 –
surprising even some of the most optimistic forecasters.
1  Corporate profits jumped 9.9% with a $101.4 billion gain on top of last quarter’s 10.3%
gain.
2  Industrial production recorded a 0.9% gain in November, the largest monthly increase since October 1999.3  The consumer showed
strong signs of life in the Fourth Quarter as The Conference Board’s consumer confidence index rebounded from a low of 77.0 in September to
91.3 for December.
4 Housing starts rose in November 2003 at a seasonally adjusted rate of 1,874,000 units, up 5.4% from the previous month.
In large part, this was due to the unprecedented decline in
mortgage rates with the 30 year fixed rate sitting at a low 5.67% average in December.
5

Despite the stronger aggregate demand for goods and services, the Federal Reserve maintained the Federal Funds rate at 1.0%, citing “slack
resource use and quite low
inflation” as reasons to maintain their accommodative monetary stance.6 The most recent November unemployment
rate stood at 5.9% - slightly below the 6.1% figure in August and September of 2003.
7

After 2003 delivered strong returns across the major asset classes, most market forecasters are preparing the investment community to expect
more modest returns in 2004.  The following is a look at several factors likely to influence market direction in 2004, and the potential market
impact of each:  

Factor:                                                                                                                                                                           Potential Market Impact

Depreciating dollar and its impact on corporate profits                                                                                                                Positive
U.S. trade deficit                                                                                                                                                                           Positive
Continued low interest rates/borrowing costs                                                                                                                               Positive
Consumer confidence / modestly improving labor markets                                                                                                           Positive
U.S. presidential election year                                                                                                                                               Generally Positive
OPEC’s intentions for world energy prices                                                                                                                           Uncertain/ Negative
Terrorism/homeland security issues                                                                                                                                     Uncertain/ Negative

Only time will tell how these and other factors will influence the direction of the investment markets in 2004.  Regardless of the inevitable short-
term volatility of the markets, it remains critical for long-term investors to focus on maintaining a disciplined asset allocation strategy and securing
highly capable investment firms to implement the on-going portfolio management decisions.   




Regards,



Robert Valentine




Endnotes:

1  Bureau of Economic Analysis, 12/23/2003 Press Release.
2  Ibid.
3  Federal Reserve Statistical Release, 12/16/2003
4The Conference Board, 12/30/2003 Press Release.
5  FHLMC Conventional Home Loan publication, 12/16/2003.
6  The Federal Reserve Press Release, 12/9/2003.
7  U.S. Commerce Dept. Census Bureau and U.S. Dept. of Housing & Urban Devpt. Joint Release, 12/16/2003.
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