THIRD QUARTER IN
REVIEW
By Joseph M. Valicenti, Chief Operating Officer
Joseph M. Valicenti
For the first time in
three years, the S&P
500 Index has recorded
back-to-back positive
quarterly returns.
Through nine months of
2003, the major indices have returned 14% for
the S & P 500, 13.29% for the Dow Jones
Industrial Average and 33.8% for the NASDAQ
Composite. This is a positive, broad based trend
that has touched most industries and sectors.
The interest rate environment continues to
provide optimism both on the short end and the
long end for “Easy Money” monetary policy,
although the 30-year Treasury rates strongly
advanced from roughly 4.6% to 5.45% during
the first part of the quarter. The Federal Reserve
at its latest meeting remained neutral on interest
rates, which drove long-term rates below 5% at
the end of the quarter. This indicated that the
economy may need more help than just a strong
equity market.
Consumer sentiment is starting to waiver in
the University of Michigan Survey Index but
consumers seem eager to spend and the month of
September finished with a strong week of retail
sales bucking the sentiment numbers. Consumer
debt and savings rates have been areas of
concern, but according to BCA Research,
personal savings rates are higher than those of
the last three years and the ability to get loans
has been made easier over the last two years.
(See graph below) For now, consumers are not
overextended financially.
Continued on Page 3
September 2003
INTERNS EXPANDING OUR WORLD TOGETHER!
INVESTOR SENTIMENT –
DOES IT INDICATE
THE BULL IS BACK!
By Michael V. Valicenti, Director of Marketing
By Lawrence P. Tolbert, Portfolio Manager
A
s the summer winds down, the hot and
hazy temperatures turn to calm, cool
breezes, and the colors of autumn begin
to appear, we send our summer interns Jeffrey
Benesh and Andrew Clark back to school. We
would like to recognize their contributions to the
firm.
Over the past 19 years, we have provided an
opportunity for both high school and college
students to have an “on the job” work
experience. It allows the students to obtain an in
depth view of a business setting, while giving us
the chance to hear new thoughts.
Jeff returned to us this year. He is in his
senior year at Syracuse University, studying for
his bachelor of science in finance and accounting
at the Whitman School of Management, where
he has maintained a position on the Dean’s List
since 2000. His intentions are to attend law
school after graduation and we wish him the best
in all his endeavors.
Andy is also a senior, seeking his bachelor
of science in financial economics from SUNY
Binghamton. He has maintained a place on the
Dean’s List for the spring 2002 semester as well
as both 2003 semesters. Andy plans to join us
during his winter break.
This summer presented many challenges for
Jeff and Andy as well as the firm. They were
involved in statistical, political, economical, and
financial discussions with the Investment
Committee. We were very pleased to observe
their enthusiasm, the sharing of knowledge, and
their participation.
We feel that this experience is rewarding
and valuable for their personal and professional
lives and provide refreshing points of view for
our staff. We are, Expanding Our World –
Together!
A
lthough we've had a terrific year in the
market, it's too early to predict if this
rally is sustainable for the long run.
One factor that we look at to determine if a
rally is sustainable is investor sentiment. If
investors are buying more stocks and less bonds,
there's positive momentum in the equity market
place. If they're buying more fixed instruments
and less stocks, there's a negative vibe in the
equity market place.
During the month of August, investors
purchased $22.91 billion in equity mutual
funds, representing the sixth straight month of
inflows into stock funds. Bond funds have
experienced the opposite with $12.59 billion of
outflows in August and $10.84 billion in
July. August numbers represent the largest
outflow since January 2000 when $12.77 billion
was withdrawn from fixed income funds.
For the year, stock funds have added $79.75
billion in net new inflow. This is a remarkable
achievement considering that in 2002 investors
pulled $26 billion out of stock funds. As
positive as these numbers are, there is still plenty
of room to grow. In 2000, investors added $309
billion to stock funds.
While investor sentiment is just one of many
indicators, we feel positive momentum
will continue throughout the remainder of the
year and into 2004. With money markets and
bond yields at all time lows, we should continue
to see growing interest in the equity market. We
may indeed be at the starting line for the next
“bull run”. It's early, but investors are
positioning their portfolios for increases in
equity prices.
September 2003
NOTE FROM THE PRESIDENT
By Vincent R. Valicenti, President and CEO
e are
pleased to
announce
that the
AIMR Board of
Governors has
awarded the right to
use the Chartered
Financial Analyst
(CFA®) designation
to Sean M. Dwyer.
Sean, a cum laude
graduate of St.
Bonaventure University with a bachelor degree
in business administration in finance and
accounting, joined the firm in 2001. He serves
as a member of the firm’s Investment Committee
and his duties include security analysis and
security trading as well as assisting the firm’s
Portfolio Managers.
Sean’s contribution to the firm as an
Security Analyst provides invaluable
independent research to our Portfolio Managers
and the Investment Committee, therefore,
benefiting our clients’ portfolios. We are very
pleased with his abilities and contributions and
we are very proud of his achievements within the
firm and the industry. Congratulations, Sean!!
W
YEAR END TAX PLANNING
By Ralph H. Roberts, Jr., Client Services
A
lthough tax planning should be an all
year activity, unfortunately many of us
are guilty of waiting until the end of the
year to take the necessary actions. By reminding
you now, perhaps the appropriate consideration
will reduce your tax liability for 2003!
We suggest that the following items be
reviewed:
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
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Capital Gains and/or Losses
Charitable Deductions
Other Deductions
Gifts
Income Tax Rate Reduction
Paying Off Credit Card Debt
Retirement Account Contributions
Withholding Adjustments
Accelerated Property Taxes
Alternative Minimum Tax
Should you have any questions, need advice
regarding the above listed items, or require tax
planning in general, please call one of our client
services representatives, Ralph Roberts or Mike
Valicenti. We will be happy to research your
concern and provide a response or have one of
our other professionals contact you directly.
THIRD QUARTER IN REVIEW
(Continued from Page 1)
The United States has moved from a
manufacturing economy to a service economy
over the past 20 years. Even though the
population of the United States has grown in the
last 20 years, manufacturing jobs are roughly at
the same level as those in the 1960s. This
indicates that the growth in the job market has
been in the service area rather than
manufacturing. The service area includes not
only retail and business services, but also
technology such as software and information
technology (IT) consulting.
One of the economic statistics, capacity
utilization for manufacturing, currently at a rate
of 73% does not necessarily reflect the demand
for capital spending for computers, software, or
September 2003
IT consulting. This demand is now expanding
for two reasons; deferred spending on equipment
since 2000 and companies desire for higher
productivity without increased employment.
Companies like Intel and Microsoft have
forecasted increased sales for the fourth quarter
and for the year 2004 for hardware and software
applications. Wal-Mart, Lowe’s, and Home
Depot as well as other retail companies have not
only anticipated expanding the size of their
individual stores, but also the total number of
stores. New technology and capital items will be
added to the new expansions. On the energy
front, even before the “Blackout of 2003” and
with the deregulation of energy, the need to
update the grid system while also meeting new
demand for energy in a recovering economy will
add to capital expenditures in the year 2004.
The pullbacks are normal, although there is
cause for concern with some of the economic
numbers as we “bump” our way out of the recent
recession and slow growth period. The monetary
policy and fiscal policy put in place early in the
year is continuing to set the investment
performance pace. The Fed will continue to
keep short-term interest rates low in order to
facilitate liquidity and to keep equity prices
stable in the face of economic strength. The next
year may present many hurdles because it is a
presidential election year, the threat of
worldwide terrorism continues, and the growing
cost of transitioning Iraq to a democratic society.
INVESTMENT STRATEGY
By Jeffrey S. Naylor, Chief Financial Officer
T
he third quarter continued to show both
strength and recovery in the economy.
Corporate earnings also show
improvement and company managements
continue to forecast higher earnings. The
previous interest rate decreases were sufficient
for the Federal Reserve to keep interest rates low
and unchanged for the foreseeable future.
The markets for both the third quarter and
the year continue to improve. The S & P 500
Index is up 2.57% for the quarter and 14% for
the year. More stocks are advancing than are
declining resulting in signs of improvement in
the market. Taking advantage of the new tax law
for dividend income, which became effective
earlier this year, we have noticed corporations
raising their dividends.
Our fixed income strategy is to invest in
investment grade bonds with higher coupons.
Since money markets remain below one percent,
any cash should be used for investment
opportunity. With the improved economic and
market conditions, our asset mix is 60% stocks,
35% bonds, and 5% cash. The asset mix could
change based on client specific directives, need
for income, and risk levels.
Asset Allocation
5%
Pass it on… If you think we do a good job for
you, please refer your friends and family. We’ll
make sure they can’t wait to thank you!
35%
60%
Stocks
Bonds
Cash
This material is intended for the clients of Valicenti Advisory Services, Inc. The information contained herein is based on sources believed reliable;
however, its accuracy cannot be guaranteed. This publication is not an offer to buy or sell securities. Past performances are no guarantee of future results.
© Valicenti Advisory Services, Inc., September 2003.
September 2003