STOCK MARKET COMMENTARY
For the week of Jan. 28, 2008
Nothing seemed small about the market’s fluctuations in either direction last week, but some analysts believe the latest adjustments may be a sign of healthy change after several weeks of mostly declines. This week could provide a sharper picture of the economy’s overall health: President Bush will deliver his State of the Union address today (Monday), the Federal Reserve holds its first regularly scheduled meeting of 2008 on Tuesday and Wednesday, and the Labor Department releases its report on the state of the job market on Friday. For the week, the Dow ended up 0.89 percent to close the week at 12,207.17 and the S&P gained 0.42 percent to end the week at 1,330.61. The NASDAQ lost 0.59 percent to finish the week at 2,326.20.
Deep Cuts – The Federal Reserve at an unscheduled meeting on Jan. 22 cut interest rates by three-quarters of a percentage point to 3.5 percent, its largest cut in almost 24 years. The federal funds rate – related to consumer credit card debt, home equity credit lines and car loans – dropped from 4.25 percent to 3.5 percent, and the discount rate – which the Fed charges banks on their loans, dropped from 4.75 percent to 4 percent. The Fed this week holds it regular meeting, which many analysts expect will conclude Jan. 30 with another rate cut of possibly a half point.
We’re Hiring – New claims for the unemployment benefits dropped for the fourth consecutive week to 301,000, according to Labor Department figures for the week ended Jan. 19. Analysts had expected an increase of 19,000 jobless claims instead of the 1,000 decrease, which took the number of claims to a four-month low.
The Cost of Wellness – The average cost of one night in a semiprivate room in a Midwestern hospital (not counting doctor’s services) has soared from $809 in 1987 to $5,504 in 2007, an increase of 10.1 percent per year over the two decades. Inflation in the U.S., as computed by the consumer price index (CPI), has increased by 3 percent per year over the same 20 years. The CPI is a measure of inflation compiled by the U.S. Bureau of Labor Studies (Source: Medical Mutual of Ohio, Wall Street Journal, and Department of Labor, BTN Research).
Help Wanted – The Fed, already short two people from its seven-member Board of Governors, may be three people short as of Jan. 31, 2008. Randall Kroszner’s term runs out this week, and he has yet to be reconfirmed by the Senate Banking Committee. The positions of former Fed members Mark Olson (he quit in June 2006) and Susan Bies (she quit in February 2007) have never been filled(Source: Federal Reserve, BTN Research).
WEEKLY FOCUS – You’ve Heard the Bad News. Here’s The Good.
Market volatility like we’ve had so far in 2008 can be worrisome for many investors. We’d like to point out afew facts that highlight the positive:
1. Congress is considering rebates to put more money into the economy. The total stimulus package is approximately equal to the losses in the financial sector due to the credit crunch – around $150 billion. That tactic has worked before. The New York Times reported that the 2001 recession lasted eight months, ending six months after Congress enacted a broad economic stimulus package.
2. The federal funds interest rate is at 3.5 percent. Former Federal Reserve Chairman Alan Greenspan persistently raised interest rates from a low of 1.00 percent in June 2004, and for several Federal Reserve meetings after he retired, his successor, Ben Bernanke, continued raising rates up to a high of 5.25 percent in August 2007. That has given Bernanke plenty of leeway to assist an economic recovery by lowering rates as necessary.
3. If you’re still working, the overall employment picture looks good. Massive layoffs like we saw in the 1990s are unlikely. We have a nimble economy that is very dependent on technology and highly skilled labor, and except for the housing sector, most employers shouldn’t need to sacrifice revenues by liquidating inventory or cutting jobs. American consumers drive much of the global economy, so keeping them employed keeps the economy moving.
Those are the current economic facts. Looking at the historical data, the markets haven’t had a negative 10-year period since 1938, according to Securities America Director of Investment Research Doug Fehr. Since no one can predict the future, the rest of the picture comes from your personal situation: your financial and emotional tolerance for risk; your asset allocation, which may call for a rebalancing at this or some future point; and changes in your lifestyle, such as marriage, divorce, a change in job or career, birth of a child, an empty nest, death of a spouse or disability of yourself or a spouse, or a myriad of other factors.
We encourage you to call us whenever you have a lifestyle change or if you just need a sounding board for your market concerns. Regular reviews of your portfolio and overall investment plan are the best way to ascertain whether market changes – in either direction – call for adjustments. If you’d like to schedule a review, please contact our office. We’ll be happy to schedule an appointment.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and include reinvestment of all dividends. WMCSAI# 266946