“I am the Egyptian Magician!” – The Jerky Boys, 1993

By David B. Armstrong, CFA | Jan 31, 2011 | Weekly Market Commentary

Even with the 4Q GDP report showing that the economy advanced 3.2% (up from 2.6% in the 3Q) the week ended on a decline as the unrest in Egypt caused investors to seek the safety of the U.S. Dollar and Treasuries.  At this point, if Mubarak can stay in power, he may indeed be the real “Egyptian magician.”

However, I wonder how much of the sell-off is a result of real worry over the geopolitical situation vs. an excuse to take profits on a market that has run for almost 2 full months.

The equity markets we track were mostly down last week.  The DJIA fell -0.41% to finish at 11,824, the S&P 500 Index lost -0.55% to end at 1,276, and the Nasdaq Composite Index lost -0.10% to finish at 2,687.  The Russell 2000 index, which tracks the performance of small capitalization stocks, was the only winner this week, rising 0.29% to finish at 775.

The news has been filled with the turmoil in Egypt and I believe it’s partially responsible for the market action.  I switched it off when I heard a reporter commenting on how the crowd was in an uproar over the fact that the tear gas canisters were produced in the U.S.  I suppose he did not notice the U.S. produced M1A1 tanks and M113 personnel carriers rumbling down the street while F-16 jets were flying over head.  While a new president could be a historic event in Egypt, I’m not so sure it requires action by investors who maintain a complete and comprehensive plan and a sound, well thought out investment strategy.  While news is news, investors must forge onward since there is no way to predict or really hedge against geopolitical risk.

The GDP report was good.  It showed that the initial reading for annualized growth in the 4^th quarter came in at 3.2%.  I think that confirms that an actual expansion is underway.  This reading exceeds the last peak reading in the 4^th quarter of 2007.  Technically that means the “recovery” is over and our economy is now in “expansion,” but there are still over 7 million people out of work that may not feel the same way.  Fewer workers doing more work is great for corporate earnings and, as a result, we suspect that we will start to see the employment picture turning up.

We still have a positive outlook on the equity markets and are over-weight the small and mid cap space and the technology sector.  We are still looking at investments in areas OTHER THAN bonds for fixed income allocations.

Call us for help or if you have any questions.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and cannot be invested into directly.  Stock investing involves risk including loss of principal.  The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries, and widely held by individuals and institutional investors. The Standard & Poor’s 500 Stock Index (S&P 500) is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. The Russell 2000 Small Stock Index is an unmanaged index generally representative of the 2000 smallest companies in the Russell 3000 Index.  The Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.