Stock Market Commentary
For the week of September 22, 2008
Following two weeks of unprecedented change, Wall Street continued to recover Friday on news that the government plans to assist banks and money market funds. The Dow collectively gained about 780 points Thursday and Friday but still closed the week down 0.27 percent to 11,388.44. The S&P added 0.30 percent to end the week at 1,255.08, and the NASDAQ climbed 0.56 percent to finish the week at 2,273.90.
On Hold – On Tuesday, Sept. 16, the Federal Reserve voted unanimously to leave short-term interest rates unchanged at 2 percent, despite the Dow dropping 504 points the day before. Also on Tuesday, the Federal Reserve Bank of New York made an additional $70 billion available to banks. Although the Fed continued to pump cash into the financial system throughout the week, many economists expect a Fed rate cut in the future, possibly before its next regularly scheduled meeting.
Energy Ease – Consumer prices dropped 0.1 percent in August, lead by a 3.1 percent decline in energy prices – the biggest single-month decrease in nearly two years. The decline follows overall price increases in June and July.
Asset Stats – An estimated 2.7 million U.S. taxpayers have gross assets worth at least $1.5 million. Of that group, 357,000 taxpayers have assets worth $5 million or more (Source: Internal Revenue Service, BTN Research).
Where Credit Is Due – Nearly all of the 3.3 percent growth in the U.S. economy reported for the second quarter 2008 (i.e., quarter-over-quarter growth rate expressed as an annualized total) was attributable to the surge in our nation’s trade numbers. Net exports sold to foreign buyers accounted for 3.1 percent of the 3.3 percent growth rate, i.e., 94 percent of the growth reported was directly tied back to our rising exports (Source: Commerce Department, AP, BTN Research).
Storms & Stocks – Hurricane Katrina struck land on Monday, Aug. 29, 2005, a week before Labor Day three years ago. Hurricane Gustav struck land on Labor Day Monday, Sept. 1, 2008. In the month following Katrina, the S&P 500 gained 1.5 percent (total return). In the three months following Katrina, the S&P 500 gained 4.3 percent (Source: BTN Research).
WEEKLY FOCUS – Keeping Perspective
The volatility of the market is causing concerns for many investors. Fueling that volatility are continuous headlines about how economic uncertainty is driving recent stock market activities. These uncertain times can be challenging, even to experienced investors.
It can be difficult not to get emotional in this kind of market and to balance your anxiety with reason. Bear markets can tend to over-correct and undervalue stocks because of investor fear, in the same way that stocks, in the final stage of bull markets, can become overvalued. One of the worst things to do is essentially buy high, sell low. Selling out at some of today’s lows and putting the cash someplace equivalent to the mattress in the bedroom is not what you want to do. It’s important to get past those basic emotions and stay focused on long-term results.
One way to keep market activities in perspective is to remember that corrections, and recoveries, are normal parts of economic cycles. While not a guarantee of future results, history has shown time and again, that in the long run, traditional asset classes, such as stocks, bonds and bills, have all grown. It’s important to note however, that some of what we’re seeing right now is unprecedented. But again, the market will get through this.
Having a historical perspective and a sound financial strategy can help provide the sense of security and confidence to stay-the-course, even in today’s market volatility, to ultimately achieve your investing goals. If you have any concerns, don’t hesitate to call my office to set up an appointment for a thorough review of your portfolio. That way, you can be more confident about your decisions.
* 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# 287565