Stock Market Commentary
For the week of April 14, 2008
A quiet week on Wall Street ended with a slight stumble on Friday after General Electric Co.’s first quarter report disappointed. The major indexes had shown moderate gains on Thursday after a larger-than-expected drop in unemployment claims. The Dow ended the week down 2.19 to close at 12,325.42. The S&P dropped 2.69 percent to end at 1,332.83, and the NASDAQ lost 3.41 percent to close the week 2,290.24.
Big Daily Swings – Over the past 10 years (1998-2007), 30 percent of the trading days for the S&P stock index finished with either a gain of at least one percent (i.e., the change from the previous day’s close) or a loss of at least one percent. In the first three months of 2008 (i.e., the three months that ended March 31), 51 percent of the trading days have been up or down at least one percent. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market (source: BTN Research).
Stock Prices and Earnings – The price-earnings (P/E) ratio of the S&P 500 at the end of March 2008 was 18.3. The P/E ratio for the S&P 500 on Sept. 30, 2002, (i.e., just nine days before the bottom of the 2000-02 bear market) was 17.6. A company’s price-to-earnings ratio is equal to a company’s stock price divided by its earnings per share over the previous 12 months. When compared over time, this ratio may provide some insight into undervalued and overvalued stocks (source: Barron’s, Wall Street Journal, BTN Research).
Unemployment Improvement – The number of new claims for unemployment benefits fell to 357,000 for the week ended April 5 from a revised 410,000 the prior week. Economists had expected claims to fall to 383,000 from the initial 407,000 reported for the prior week – meaning the total number of claims dropped by 53,000 compared to the 24,000 analysts anticipated.
Doubled in a Decade – The total assets held in U.S. retirement plans has nearly doubled in value in the past decade. A study by Watson Wyatt Worldwide found assets in U.S. pensions, 401(k)s, individual retirement accounts and other retirement savings vehicles rose from $7.9 trillion in 1997 to $15 trillion in 2007. The makeup of those assets has changed over that period, with defined contribution plans including 401(k) plans and IRAs accounting for 56 percent of total assets last year, compared to 47 percent 10 years ago. Retirement assets of the 11 countries with the largest workplace retirement systems grew just 7.4 percent since 1997.
Online Silver Lining – Online retail sales may provide a bright spot in the 2008 economic outlook. According to a survey by the National Retail Federation (NRF), online retail sales, excluding travel, are expected to grow to $204 billion, up 17 percent from last year. Although a slower rate of growth than the 21 percent increase in 2007, the slower growth represents maturing of the business, not a sluggish economy, according to Shop.org, the online arm of the NRF.
WEEKLY FOCUS – Timing Long-Term Care Coverage secure long term care insurance until a decade or even two before retirement, but the reasons for purchasing long-term care coverage earlier in your adult life continue to get more persuasive. Younger policy purchasers can lock in discounts based on health qualifications as well as premiums based on today’s costs, plus spread the premiums over more years. According to the America Association for Long Term Care Insurance (AALTCI), for those 60 or older, rates can go up 8-9 percent per year for each year you delay buying coverage.
That’s assuming you can get coverage if you wait. The actuarial firm Wakely Consulting Group studied long-term care policy applications in 2003-2004 and found that 11 percent of those in their 50s, 19 percent of those in their 60s and 43 percent of those in their 70s were rejected. Actuarial firm Milliman & Robertson estimates that 15 to 25 percent of those over age 65 are uninsurable for long-term care.
If cost and risk of rejection don’t convince you, consider your risk of needing long-term care long before you even reach retirement. A report from the Henry J. Kaiser Foundation found that more than five million Americans between 18 and 64 years old need some type of long-term care. AALTCI’s recent study found long-term care policyholders who had claims in their 20s and 30s due to accident or illness.
That makes sense when you look at the limitations some types of insurance have when it comes to long-term health needs. For example, a person injured in an auto accident may receive some benefits for medical care, but those expenses are typically capped at a level that long-term care costs would quickly exceed. In the case of a chronic condition such as diabetes, stroke or Alzheimer’s disease that can be managed but not cured, Medicare and most private health insurance will not pay for non-medical costs such as home mortgage modifications, transportation to doctor appointments or assistance with household chores. Long-term care coverage, on the other hand, will often provide beginning levels of assistance to policyholders unable to perform two of six activities of daily living (ADLs). Disability insurance protection helps replace your income, but it doesn’t cover any health care costs, long-term or otherwise.
Because of medical advancements, accidents and illnesses that once caused death may now cripple you – mentally, physically and financially. Regardless of your age, long-term care coverage should be part of regular reviews of your risks and insurance needs. Whether you decide to purchase a policy now or wait, you will have made an informed decision. For more information on long term care insurance for you or a loved one, or to schedule a review of your risk management plan, contact our office.
* 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 includes reinvestment of all dividends. SAI# 274317