Issue 25 - April 13, 2005


First Quarter 2005: Up, Down, and Sideways

The first quarter of 2005 could be best described as “Wall Street hash” as rising oil prices and interest rates mixed with reasonable economic news and corporate earnings. The “hash” resulted in negative returns in almost all major asset classes with the notable exception of oil which was up an astounding 30%.

After a year which featured a steady stream of high profile, catalytic events (conventions, a Presidential Election, and the Olympics to name a few), it seems 2005 should be tame by comparison. Yet, first quarter 2005 proved to be quite the opposite forcing asset allocation and stock selection to remain center stage.

Calm on Top, Turbulence Below

The first quarter index returns though negative, do not reveal the volatility that took place within the asset classes during the quarter. Consider for example the benchmark U.S. Treasury 10 year note which began the quarter at 4.26% and finished the quarter at 4.44%. During the quarter however, the 10 year note was as low as just under 4% (in early February) and as high as 4.70% (just after the March Federal Reserve meeting). Equity participants were also treated to a rollercoaster ride during the quarter. Profit taking in January was followed by strong performance in February and a difficult March finished off the quarter as rising rates and oil prices dominated the investing climate.

What’s on Deck?

The Federal Reserve made it crystal clear in their March meeting their work toward normalizing interest rates is far from done. We expect one quarter point increases at each Fed meeting through year end. Combine these increases with the anxiety provided by increasing oil prices and it will certainly be challenging for equities to provide the level of positive returns enjoyed in 2003 and 2004. However, there are good reasons to maintain some optimism. Corporate productivity and efficiency continue to make their way to the bottom line and individual wage growth has been strong – measured somewhere between 5.5% and 11%. (This interesting discrepancy is a result of a divergence between the data provided by the Bureau of Economic Analysis which relies on the monthly employment report and the actual tax withholding receipts.)

Overall investment success this year will require portfolios to defend well through these periods of weak market performance. Although there should be sufficient growth in incomes and earnings to create positive portfolio returns; the process will likely be volatile.


In this Edition

  • 1st Quarter 2005: Up, Down, Sideways
  • Calm on Top, Turbulence Below
  • What's on Deck?

Huntington Steele

925 4th Avenue
Suite 3700
Seattle, WA 98104



Past Issues

24 - 03.09.05
Housing: Priority
#1 for the Federal Reserve
Calling the Top Again
Policy Implications

23 - 02.11.05
Interest Rates and the Federal Reserve
A New Demand Paradigm
No-Traditional Buyers
4% Looks Good
Chicken & Egg Market

22 - 12.02.04
Drooping Dollar
Not Everyone is an Investor
Implications for 2005
Putting the Euro in Perspective

21 - 11.04.04
Personal Savings
Absence of Rising Tide
US Elections

20 - 10.01.04
Coming or Going?
Speed Limit
Bond Market Showdown
Absence of Context

19 - 09.03.04
Aug '04/ Oil & Jobs/
Cooling of Hot Economy

More Past Issues
can be found in our

Newsletter Archive


Market Highlights

   03/31/05 02/28/05 01/31/05 12/31/04 12/31/03
DJIA US 10503.80 10766.2 10489.9 10783 10453.9
S&P 500 US 1180.59 1203.60 1181.27 1211.92 1111.92
Nasdaq US 1999.23 2051.72 2062.41 2175.44 2003.39
EAFE Int'l Equity 1503.85 1548.60 1486.97 1515.48 1288.77
5 Yr Treasury 4.21 4.043 3.723 3.649 3.231
5 Yr AAA Muni 3.29 2.93 2.85 2.79 2.45
10 Yr Treasury 4.512 4.4 4.158 4.257 4.225
10 Yr AAA Muni 3.920 3.63 3.55 3.64 3.6
30 Yr Treasury 4.731 4.697 4.561 4.817 5.01
30 Yr AAA Muni 4.580 4.48 4.40 4.58 4.54
EUR Currency 1.2958 1.3259 1.3259 1.3652 1.2612
JPY Currency 106.88 104.35 103.63 102.48 106.92
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