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and
was rewarded with an unprecedented delay in certifying the
Florida vote, the stage was set for a free fall in the stock
market.
The big loser was the NASDAQ, down more than 4% on November
30th, marking the ninth decline in the last ten trading
sessions for the NASDAQ.
In addition, on November 30th the NASDAQ was down intra-day
more than 50% from its peak it set in mid March .
The NASDAQ declined more than 23% in November eclipsing
the DJ-30 decline of 5.1%
Most major stock market indexes regained some steam in early
December. However, the gains were lackluster as investors
remained nervous about the undecided election, the posture
of the Fed at its next meeting on December 19th, and the
state of the U.S. economy.
The presidential election remained undecided until an unprecedented
decision by the U.S. Supreme court on December 12th closed
the door for the recounting efforts of Al Gore.
Shortly after the U.S. Supreme courts decision, Al Gore
conceded the election to the new president elect George
W. Bush.
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The
stock market gained little enthusiasm for the resolution
of the presidential election as investors focused on the
outcome of the Fed meeting of December 19th.
The Fed did in fact stay on hold, leaving short-term interest
rates unchanged on December 19th. However, the Fed did
signal that it was prepared to cut interest rates in the
coming months.
The Feds interest-rate setting, Federal Open Market Committee,
warned that the economy was slowing so fast that there was
a major risk of a sharp economic downturn. The Fed's change
in bias to reduce interest rates in the future
did little to calm the nerves of many jittery investors,
and as such, most stock market indexes declined off their
high for that day.
Some analysts said that the stock market losing ground after
the Fed announcement was a reflection of some disappointment
that the Fed was not more aggressive by lowering
interest rates at this pivotal meeting.
Most major stock market indexes continued to deteriorate
after the Feds meeting as a plethora of economic reports
including auto and PC sales eroding fast continued to depict
the U.S. economy slowing rapidly.
The NASDAQ was the big
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loser
in December, closing 2000 with the worst performance in
its history, losing almost 40% for the year. Ironically,
the NASDAQ ended 1999 up more than 85%, the best year
in its history.
The high technology revolution of the 90's, has become
the high technology evolution of the new millennium. The
challenge for investors ahead will be to determine which
companies will be the winners in 2001 and beyond,
and how to price the stocks of these companies.
Whether the U.S. economy slows ahead but averts a major
recession is unclear. In either case, it is unlikely that
the indiscriminant investor will succeed ahead as they did
in the nineties, when they bid many stocks to unprecedented
valuations.
I will continue to maintain a defensive posture for my clients'
portfolios by keeping cash levels and bond quality
high. In addition, I will be maintaining a low weighting
of high technology stocks and a high weighting of energy,
health care and utility stocks. I will
continue to weight the "value" style of investing versus
"growth" to increase the safety of all of my clients' portfolios.
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