November 5, 2008

Late Rally Can’t Save October from Being Worst Month in 21 Years

Ignoring disheartening end-of-the-month economic news, investors sent the Dow Jones Industrial Average (an unmanaged index of 30 widely held stocks) on a two-day rally as October ended. The Dow finished at 9,336.93, up a striking 1,161.16 points for the week, but down 14% for the month (from its September 30 close of 10 850.66). The Dow hasn’t had such a poor October since 1987.

Other major indices performed similarly, their notably poor October performances saved from being worse by an impressive rally the last week of the month. The S&P 500 (an unmanaged index of 500 stocks), which finished at 968.75 and lost 16.8% for the month, nevertheless rose 10.5 % during October’s final week. The NASDAQ composite index (an unmanaged index of all common stocks listed on the NASDAQ National Stock Market) gained 10.9% on the week although it lost 17.7% from September’s close.

Buoyed by Wall Street’s month-end rally, most market indices around the world also gained handsomely during October’s last week, but similarly finished well down for the month.  London’s FTSE 100 index lost 10.7%, while Japan’s Nikkei index lost 23.8% and France’s CAC 40 index dropped 13.5% during October. The price of light sweet crude oil, which has been falling regularly, finished the month at $67.81, down nearly a third from its $90-plus-a-barrel September cost.

A factor in the end-of-the-month rally was the Federal Open Market Committee’s (FOMC) action in cutting the fed funds rate 50 basis points – it now stands at 1% – on October 28, citing declining consumer spending, weakened industrial production and slow economies abroad – which dampens prospects for U.S. exports – as major factors in its collective thinking. The FOMC expects inflation to moderate in the near term. Around the world, there were other rate cuts during October, and by month’s end, central banks and governments had pledged approximately $4 trillion in support of banks and money market instruments to try to turn the financial picture into something positive. Analysts agree these measures must be given time to filter through the financial systems.

Halloween closed out an astonishingly wild ride for the Dow. Even with the late rally, losses across nearly every asset class in October will certainly be reflected on your monthly statement. It is important to keep any losses in perspective, however, as this past month was one of the most difficult in decades.

As disappointing as the market has been since it peaked a year ago, our carefully designed investment processes and long-term approach remains grounded in reality and should, in time, work to your advantage. Nevertheless, this is an excellent time to review your overall financial plan, reassess your short-term needs and your long-term goals, and rethink your specific asset allocation model. While no changes may be called for, times like these remind us all that specific investments as well as general goals need to be periodically reassessed. And it is worth remembering that investment opportunities often exist, even in the worst markets

If you have questions about your portfolio or about October’s market results, please feel free to contact me.

Sincerely,

Ronald White

Branch Manager