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“We’ve got some good news, and we’ve got some bad news.” – The Hangover, 2009

Last week was quieter in the news than the previous one, now that the election results are all tabulated and the Fed has announced its plan for QE2.

The good news is that consumer sentiment and jobless claims data last week both showed improvement, and the National Commission on Fiscal Responsibility and Reform has published its draft proposals to reduce the Budget Deficit.  The bad news, however, is that there is still more work to be done on all three fronts.

The Dow Jones Industrial Average (DJIA) dropped 2.20% last week to finish at 11,193, the S&P 500 Index fell 2.17% to end at 1,199 and the Nasdaq Composite Index lost 2.36% to finish at 2,518.  The Russell 2000, which measures smaller capitalization stocks, fell 2.35% to finish the week at 719.27.

First, the good news. The Reuter’s / University of Michigan Consumer sentiment index improved again last week to hit a 5 month high of 69.3.  On the job front, initial Jobless Claims decreased to 435,000, falling to the same level as two weeks ago, with the four-week average at its lowest point since mid-September.  Additionally, the Draft Budget Deficit Reduction Plan released last week by the National Commission on Fiscal Responsibility and Reform was a step in the direction of addressing the enormous U.S. National Debt.  Also, surprisingly, data released last week showed a year-over-year decrease in the Budget Deficit of 20.73% or 35.93 billion.

On the other hand, there was also some bad news.  While the consumer sentiment numbers are improving, they are rising from one of the lowest levels seen in the past 30 years.  Clearly the U.S. consumer is getting more comfortable, but still has a long way to go.  The initial Jobless Claims numbers are an improvement, but also started at a lower revised level from the previous month. Finally, the proposals on deficit reduction have a long road to travel.  If a super-majority (14 of 18 members) of the commission supports a plan, then the current Senate leadership has committed to take up the issue on the Senate Floor for debate.  These steps are only the beginning of the process, but illustrate movement in a productive direction.  Bottom line – there is a lot of politics between here and there.

On balance, we see the aforementioned good news as a sign that positive momentum is continuing.  While consumer sentiment is still relatively low at 69.3 (the 30 year average is 87.7), it has steadily improved.  While Jobless claims were revised up last month, this month’s data shows a decrease.  While the National Debt and Budget Deficits are clearly a long-term problem yet to be solved, in the short term we are seeing improvement.   Additionally, just the fact that Congress has started debating the issue is a positive step, in our view.  While there is still work to be done, we see the data pointing to an improving economy, and it appears that we are coming out of the ‘soft-patch’ we saw over the summer of 2010.

Continue to be careful…have a plan, stick to it and be smart.  Call us for help or if you have any questions.

Securities and Financial Planning offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC

**Standard Compliance Disclosures
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. Precious metal investing is subject to substantial fluctuation and potential for loss. The fast price swings of commodities will result in significant volatility in an investor’s holdings.

David B. photo

David B. Armstrong, CFA

President & Co-Founder

Dave got into the industry when he discovered his passion for finance in his mid-20’s. He’s a combat veteran and served as an officer in the United States Marines Corps on both active duty and in the reserves, retiring at the rank of Lieutenant Colonel. While serving on active duty, Dave was unable to spend money on deployments, so he became a self-taught investor. Along with a few bucks cash as a bouncer, his investing performance grew to be good....

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