CI Outlook - Archives

November 2006

November 6, 2006


The months of September and October are generally the nadir months for the stock market.  During this period mutual funds close their fiscal year, companies confess earnings shortfalls and investors sell stocks.  All of these forces combine to cause a low point from which the market can mount a year end rally.  This year the seasonal pattern has been turned on its head.  September and October failed to produce the usual seasonal sell off.  Fortunately, early in October we concluded no sell off was coming and committed some of your cash reserves to the market.  We bought the second half of your large capitalization exchange traded fund position.  Combining the two we have constructed a core holding much like the S&P 500 index, but with a 6% average yield.  This completes the rebalancing of your core ETF holdings and provides a good income stream for your portfolio.

Looking forward we believe that the strong September-October period has left room for a market pause.  So far that is what the market is doing, pausing and waiting for news on the elections, the economy and the Fed.  In the meantime consensus opinion reflects the fact that housing prices have fallen for the first time in fifteen years.  Pundits say this should slow consumer spending, and in fact sales are very slow at Wal-Mart.  However, just as we are not worried about a crash landing in housing, we think holiday spending, while not robust, will be adequate.  We are basing this expectation on current exceptionally high personal income and low unemployment rates.  In our opinion consumers have only paused their spending.  Once the effect of higher incomes is felt, spending should resume, resulting in reasonably brighter expectations for the holiday season.  As a result we expect the strong market that usually comes in the November thru March period.  As always, we will monitor the situation and make the necessary adjustments to your portfolio as events unfold.

 

Please call us with any questions or comments.

 

CJ Brott                                                       Karen Burns

 


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