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AIC INVESTMENT ADVISORS, INC.
440 South Street, Pittsfield, Massachusetts
(December 1, 1997) STOCK INDICES: American markets rallied off the lows of late October and while new highs in the major market indices have not been recorded, the rally has been impressive. The broad-based Standard & Poor's 500 stock index (S&P 500) traded down to 855.27 intra-day on October 28 and through its 200-day moving average. Since then, the S&P 500 has recovered to the 963 level as of November 21–only 2.0% less than its record close of 983.12 on October 5. The Dow Jones Industrial Average (DJIA) traded down to 6936 intra-day on October 28 before rallying sharply and closing higher on the day. Among the major averages, the DJIA has been the weakest. The DJIA failed to record a new high in October in line with the S&P 500 and NASDAQ Composite index, and dropped significantly below its 200-day moving average.
The NASDAQ Composite index rose to an intra-day peak of 1748.78 in early October as technology issues came roaring back into favor. However, the luster of technology issues quickly faded as several erstwhile favorites failed to make their numbers (or what Wall Street analysts thought should be their numbers) and dropped sharply as holders sold in droves. The relative strength of the NASDAQ Composite, versus the S&P 500, has been steadily declining since the first week of October despite a modest recovery in the composite index. At its November close of 1620.75, the NASDAQ composite remains about 7.2% below its record October 9 close, albeit at a slightly slower pace.
The accompanying table shows the major market indices for the indicated date and the percent changes from approximately one month earlier.
Averages 10/28/97 11/21/97 % Change DJ Industrials 749832 7881.07 5.10 DJ Transportations 3099.83 3184.41 2.73 DJ Utilities 240.23 256.75 6.88 Standard & Poor's 500 921.25 963.09 4.54 S&P 500-1955 Gold $103.23 110.92 7.45 NASDAQ 1600.34 1620.75 1.28 Wilshire 5000 8899.85 9220.06 3.60
The Standard & Poor's 500 index in 1955 dollars rose to a record high of 110.88 on November 20, equal to 3.168 ounces of gold. The upward movement of this inflation-adjusted measure of equity prices reflects the decline in the dollar gold price and the recovery in equity prices during the past month.
The flow of funds into equity mutual funds continued through October with $21.0 billion added. Early November estimates suggest that despite the October turmoil, investors continued to commit funds to equities.
Investors should continue to maintain equity exposure at recommended levels. Dollar averaging programs should be maintained. Normally, November and December are positive months for equity prices.
Richard F. Maloney
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