An eventful, short week for the markets resulted in some nice gains for the major indexes. At the close on Friday, the Dow rose 3.00%, the S&P 500 gained 2.76%, and the Nasdaq topped them both at 3.13%.
Of course, the top news of the week came from the worlds #1 golfer, Tiger Woods. As some of you may know, our offices are located at the entrance to the TPC Sawgrass - the location of Tigers press conference. It certainly was a circus around here Friday morning. The amusing part is there is a back entrance these pros go through, including Tiger. The unaware press never caught a glimpse of him arriving or departing.
Now back to business. We received several economic reports this week that shed some more light on this economy. Manufacturing reports released this week show that manufacturing and industrial production continues to grow. The leading economic indicators increased for the tenth straight month. A surprise came in the producer price index (PPI), as it rose more than expected. This means that it costs more to produce goods, a signal that parts of our economy are experiencing inflation. To throw a wrench into that inflation picture, though, the consumer price index (CPI) was released the next day showing a drop in the CPI. This means it costs less for consumers to purchase goods - not a signal of inflation. Despite this, we remain committed to our belief that inflation will pick up this year and into the future, and are investing accordingly.
After the markets closed on Thursday, the Fed announced it would be raising the discount rate from 0.50% to 0.75%. This is the rate that the Fed charges banks for emergency overnight loans in order to meet reserve requirements. It was initially viewed as a signal the Fed would be tightening and the markets sold off sharply. After the news sunk in, investors realized that this is not necessarily tightening, but merely a return to ‘normalcy’. In fact, Ben Bernanke even said this is not a signal they would be tightening any time soon. We don’t expect the Fed to raise rates until late in the year or possibly into next year. This gives us a good indication how the markets will react when the Fed does tighten - there could be a sharp sell-off.
Nothing too exciting in terms of economic releases is expected for the upcoming week. We will get consumer confidence numbers, as well as home sales figures. Coming in on Friday is a second look at the fourth quarter GDP numbers. They initially showed a gain of 5.7% and are expected to be revised slightly lower.
Where are we investing now?
We have basically sat on the sidelines for the past two weeks as the market gained some volatility. We are encouraged that the volatility seems to be subsiding and the markets have closed higher. We will likely be adding money on the pullbacks. For the short term, we remain optimistic. Higher interest rates, higher taxes, increasing government involvement in the private sector, and higher unemployment have us a little worried for the longer term.
Our investment strategy remains basically the same. In equities, we are focusing on higher-quality and multi-national stocks. We are still bullish (optimistic) on commodities and believe the dollar will head lower despite its recent gains. The issues the
