Market Summary

The legendary Dow Jones Industrial Average Index reached a record high of 11,750 in September. It reached this magical peak only for a few seconds during the day and closed below the record. In fact, if you take inflation in to account, we are still a long way from a record. The DJIA index would need to be around 13,000 if you adjusted for inflation. You need to go back to January of 2000, during the peak of the dot com era, to find the market in a similar range. Today’s record comes with an abundance of caution. Investors and consumers share concerns over the high cost of energy, the war in Iraq and a weakening real estate market that threatens to knock the footings off the economy and send us into recession.

As usual, there is very little consensus as to whether we will pierce through this long standing market top into new higher territory in the months and years to come, or will we plunge into recession as we did in 2001 after the last time we reached this record. What we do know is this: relative to company earnings, the prices of US stocks as a whole are considerably cheaper than they were in 2000. In addition, the fall out from the Enron and WorldCom corporate disasters has eliminated a significant amount of corporate waste.

The S&P 500, the index measuring the 500 largest US stocks by their market capitalization was up a 5.2% for the quarter, while the EAFE Index (a market value weighted index of the largest companies in Europe, Australia, and the Far East designed to measure overall conditions of overseas markets) was down -2.92% over the same period. Year to date, the S&P 500 and the EAFE idecies were up 8.79% and 10.06% respectively. Why the big jump? Fed Chair Ben Bernanke and his friends at the Fed finally stopped raising rates. This, coupled with a drop in energy prices created a new market euphoria. Debt payments and energy costs have a huge impact on consumer spending.