Marketing Commentary- Q4 2003

What’s Been Happening?

The stock markets of the world soared upward in the last quarter of 2003, in joyous defiance of common expectations. Concerns over the U.S. occupation of Iraq, lack of job creation during the economic recovery and other worries couldn’t constrain financial markets bent on running for daylight.

It bears repeating that the extraordinary returns of 2003 were largely unexpected. When short-term returns are so often surprising, it is relevant to ask, “When will we admit we cannot predict and cease to be surprised?”

Trends to be Aware of

The biggest worldwide economic story is the decline of the dollar. The Euro has risen from under ninety cents ($.90) to over $1.25 in less than two years, nearly a 40% rise. That trend has been echoed around the world and has been a major contributing factor to the high returns of international stock and bond funds. Predictions abound saying the dollar will continue to fall, but remember that predictions and trends usually overshoot and then correct.

Soaring returns in high technology seem particularly unsustainable. The highly anticipated IPO of Google may turn out to be a watershed event. Can a company with that much competition really be worth $12 billion?
What To Expect From Here –

Markets have rebounded in the past twelve months, but they have probably not fully recovered. Trailing five-year returns are still only break-even for the largest company stocks both at home and abroad, well below their long-term averages. Valuations are fair relative to interest rates. We expect average returns going forward.

Some Numbers for Comparison:

The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 12/31/03.

Data source:  Thompson Financial