Investment Recap Third Quarter 2004

The stock market averages corrected in the third quarter with small cap stocks performing worse than large cap. This calendar year has seen stocks trade in one of the tightest trading ranges in history (+/-4%). The market has truly been a test of patience as investors are buffeted by news on Iraq, the dynamic of a Presidential election campaign (and the increased polarization of statements and positions), as well as what Federal Reserve Chairman Greenspan is calling a “pause” in consumer and business spending. The other development which has further thrown a monkey wrench into economic projections is the surprisingly steady increase in the price of oil.
We are inclined to make the tongue-in-cheek suggestion to our clients and friends to just become “Rip Van Winkles” and merely not worry about the financial markets for the next several weeks. After all, the election will be over in less than three weeks. Either winning candidate will move towards the center. The price of oil should stabilize or decrease because of additional economic exploration and discovery at these high prices; and the business/consumer pause shows signs of ending. Corporate earnings have been, for the most part, better than expected, although with more individual negative surprises than in the last twelve months. Since early August, the tone of the stock market (prices), has (have) improved somewhat, and we expect customary seasonal strength in the final quarter of the year. At the beginning of the year, our expectation was for high single digit returns for stocks, and that is still the way we expect markets to play out.