Stock Market Commentary
For the week of August 11, 2008
The Market
A rising dollar and falling oil overshadowed news of higher unemployment and lower worker productivity last week, giving the major indexes their largest weekly gains since April. The dollar gained its highest level against the euro since February, contributing to the continued drop in oil prices that now totals a decline of more than $30 a barrel over the past four weeks. The Labor Department reported slightly slower growth in worker productivity, with a second quarter gain of just 2.2 percent compared to the 2.7 percent analysts had predicted. The Dow ended the week with a 3.71 percent gain to close at 11,734.32. The S&P rose 2.93 percent to end the week at 1,296.32, and the NASDAQ climbed 4.46 percent to finish the week at 2,414.10.
Holding Pattern – The Federal Reserve voted this week to hold the federal funds rate at 2 percent, its second no-action vote following seven consecutive cuts aimed at bolstering the flagging economy while still controlling inflation. Many economists believe the Fed will leave the rate unchanged for the remainder of the year, which would hold the commercial bank prime lending rate, on which consumer and business loans are based, unchanged at 5 percent, its lowest level since 2004.
Different Environment – As the financial security of bond insurers has been scrutinized due to the nation’s credit difficulties, fewer new municipal debt offerings are being issued with bond insurance. Only 21 percent of new municipal bonds issued in the second quarter 2008 were insured, less than half of the 47 percent of new issues that were insured during the same quarter in 2007 (Source: Thomson Reuters, Wall Street Journal, BTN Research).
More Than Most – To rank in the top 1 percent of all U.S. taxpayers, an individual would have to earn $388,806 of adjusted gross income (Source: IRS, Tax Foundation, BTN Research).
New Face – The Fed had a new face at its monetary policy meeting last week. Banker Elizabeth Duke was sworn in as a Federal Reserve governor on Aug. 5. Duke was nominated to complete the term of Susan Bies, who resigned more than a year ago. Duke’s term expires in January 2012. Duke has been president of the Virginia Bankers Association and chairman of the American Bankers Association.
Not Much Has Changed – The production of crude oil that occurs in the U.S. today (5.1 million barrels a day) is the same level of production domestically as it was in 1949 (Source: Department of Energy, BTN Research).
WEEKLY FOCUS – Going Global
Friday’s Olympic opening ceremony in Beijing highlighted the beauty of the diversified peoples and cultures of our planet. More than 16,000 athletes from more than 200 countries will compete in 302 events in 28 sports. There will be something for everyone.
Diversification has long been a basic rule of thumb for investment. Diversification seeks to reduce risk while maximizing returns by investing in dissimilar asset classes. It should be noted that this strategy does not prevent losses from occurring in a down market.
According to TheStreet.com, during the late 1990s, foreign shares accounted for about 30 percent of total world stock market value. Since then, the foreign total has climbed to about 56 percent, as markets such as India and Brazil have soared while Wall Street lagged.
So how do you take advantage of the global economy? While something can be said for buying and supporting the U.S., investing in foreign companies offers the potential to reduce risk by putting money into economies that may be expanding while the domestic economy contracts, or vice versa. In today’s markets, opportunities abound for global investments that target specific countries or a group of countries.
Economies are always shifting and adapting. With the proper balancing and a specific investment strategy formulated with a financial professional, you can invest in countries across the world and potentially take advantage of world growth. Call our office for more on using global investing to diversify your portfolio.
* 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. Written by Securities America. SAI# 285209
