What a year 2008 was. The subprime mortgage crisis and ensuing “credit crunch”, having emerged as an ominous fledgling snowball in 2007, grew into a full fledged avalanche that mercilessly bulldozed the US and global markets. So things have to get better in 2009, right? Well…maybe.
Off to a Rough Start
Right out of the gate, we were off to a rough start in the US. According to Business Week, at the end of ‘08 US markets were over 50% lower than their highs in 2007, and investors had almost 40% of fund assets in defensive money market investments. Barron’s noted that Large Cap stocks had the worst 10 year trailing returns since 1827, and returns on equities vs. bonds were the worst since the 1970s. Good times - so now what?
“Improvement” is a Relative Term
Analysts believe that, if there is an improvement in the markets in ‘09, it will be minor. The Wall Street Journal Economic Forecasting Survey predicts Gross Domestic Product (GDP) to fall 0.3% this year due to a slow 1st and 2nd quarter. In addition, unemployment is expected to rise to a whopping 9% by year end.
However, Q3 and Q4 are expected to show signs of recovery, with GDP growth rising to about 2% in the fourth quarter of 2009. Further, the US stock market may actually end the year on the upside. Both Barron’s and Business Week have featured analysis (from solid sources) that suggests the S&P 500 could close out 2009 at levels between 1000 to 1200 (that’s about 18% higher than current levels).
So, what to do? As you know, nothing is a sure thing - stick to your long term plan, stay diversified and ignore the talking heads on the financial networks. Use this “down” time to educate and improve yourself - I think this is our best bet right now.