Financial Watch

It is time to take a hard look at stock portfolios and determine whether there are some long positions that should be scaled back or sold. Hurricane Katrina provided a catalyst that triggered a short-term rally in the markets, but the hard realities of the damage caused are beginning to be felt in the market. Adding to our concerns is the apparent reluctance of the Federal Reserve to halt its interest rate hikes. The Fed will meet this week to discuss current policy. It is Financial Watch’s expectation that interest rates will be raised by another 25 basis and the bias toward further tightening will remain in place. Outgoing Chairman of the Fed, Alan Greenspan, continues to be concerned about the impact of a stronger labor market and limited excess capacity triggering future inflation. Financial Watch believes a stretched consumer and inflated commodity prices lead us to believe the economy is currently slowing down to less than desirable growth levels.

Financial Watch believes it is too early for investors to panic. In the long-term we expect the U.S. stock markets to register hefty gains, but our short-term outlook is much more pessimistic. The coming months are typically the most volatile of the year and the present uncertainty concerning Hurricane Katrina’s impact on the U.S. economy causes Financial Watch to be worried about a potential crisis emerging. It has been nearly five years since the collapse of the U.S. stock market delivered a global economic shock, which is the longest gap since a global economy emerged.