Archive for the ‘The Stock Market’ Category
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.
Much has been made of the disaster surrounding subprime lending and the subsequent government bailouts of large institutions such as AIG. The media has done an adequate job of scaring the masses to death, and many will do (as is human nature) the wrong thing and exit the markets licking their wounds.
However, if you can, stay the course and tune out the media. Why? History has shown that the government has always stepped in to correct large scale financial problems. Don’t believe me? Give this Wall Street Journal article on government bailouts a quick read (may require subscription).
The bottom line: the US continues to be a premier player in the world economy. Markets boom and bust (and will continue to do so) but as a significant world power we are relatively young. Sure, things will be a little tougher for a while - but keep your eyes on the horizon as US stocks are still the place to be in the long run.
Tags: government bailouts, stock market
After a two month delinquency in updates we’re back. And, wow - what a market to start writing about again. Since our last post in April, the S&P 500 lost 9% of its value while the Dow surrendered a hefty 11%. In fact, we are knee deep in recession as far as textbooks go - with the Dow crossing the 20% drop mark in early July. So, what now? To steal a line from the late great Douglas Adams - don’t panic. The slow market days of summer are the perfect time to step back and reassess the situation. (more…)
The US Bureau of Labor Statistics released March Consumer Price Index (CPI) data today, showing that inflation continues to be an issue for the US economy. Overall, prices increased 0.3% in March vs. February and 4% over the last twelve months.
Don’t be fooled by the so-called “core” inflation number which shows inflation of 0.2% and 2.4% respectively. The core number excludes food and energy items; two components which have seen the highest price growth and impact consumers the most. Inflation is a killer for economies, as higher prices weigh on corporate earnings and reduce the present value of future real cash flows.
More Housing Pain
Housing data out today also showed more of the same, as housing starts fell about 12% in March vs. February. March housing starts are also 37% lower than they were in March 2007. Good times.
The Bureau of Labor Statistics announced unemployment jumped to 5.1% in March this morning, confirming investor fears that the US is in the throes of a recession. Per the data, non-farm payrolls fell by 80,000 in March, led by further declines in manufacturing, construction, and employment services.
Bad News Gets Worse
Of particular note is a decline of 35,000 jobs in professional and business services. This is unsettling for Wall Street, as these jobs had remained resistant to the declining job market until now.
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