Weekly Market Commentary

Commentary for the week ending 10-30-09

For the second straight week, markets have lost ground and saw an increase in volatility. The Dow closed down 2.5% for the week. Even worse, the S&P 500 closed down 4% and the Nasdaq was lower by just over 5%. With the exception of the Dow, markets closed the month lower and the Dow was unchanged.

This week saw the release of the third quarter GDP, which was in-line with economists estimates. Nonetheless, the market popped higher on the news Thursday, making the largest single-day gain since July. Unfortunately on Friday, the market gave back that gain and then some, losing 2.5% and making the largest single-day drop since July. Consumer spending came in lower and bankruptcy talk from CIT indicates there may still be trouble in the commercial lending sector.

The dollar saw some strength this week, which helped gold and oil prices finish lower. We believe the dollar was due for a pullback and traders had become overly bearish. However, we believe the trend is still downward for the dollar. There is not one policy from the U.S. government which would cause the dollar to strengthen. Record low interest rates, a lose monetary policy, an increase in the money supply, and a growing deficit with even more government spending in the future, all point to a lower dollar in the future.

The market is experiencing an increase in volatility, which is visible in the large market swings last week. Investors are getting jittery and negative sentiment is creeping back into the market. The bears are becoming more vocal and numerous, wondering if we have already reached the highs for the year. Up to this point, we have not seen the underlying U.S. economy participate in the rally the markets have seen. We continue to believe this will be the case. We feel the markets will continue higher for the year, albeit modestly now, pushed by the cash still on the sidelines.

Next week will see the FOMC rate decision on Wednesday, which is expected to remain at 0-0.25%. Friday we get October unemployment numbers, which are expected to push unemployment to 9.9%.

Where are we investing now?

We continue to buy equities on the market pullbacks, especially multi-nationals. The cash on the sidelines will continue to push the market higher. We are still bullish (positive) on commodities as the dollar slides further lower. We are also putting some money in TIPs, expecting inflation to pick up in the future.