Stock Market Commentary
For the week of July 13, 2009
Uncertainty about the economic recovery, reflected in a drop in the U.S. consumer sentiment index, brought the major indexes lower for last week. Several additional economic indicators will be released this week, including the Commerce Department’s June retail sales report and May business inventories report, the Labor Department’s June Producer Price Index and Consumer Price Index, the Federal Reserve’s June industrial production report and the National Association of Home Builders’ July housing market index. Second quarter corporate financial results to be released this week include Goldman Sachs Group, Intel Corp., Johnson & Johnson, Google, Bank of America, Citigroup Inc. and General Electric. For the week, the Dow dropped 1.54 percent to close at 8.146.52. The S&P lost 1.87 percent to end the week at 879.13, and the NASDAQ fell 2.25 percent to finish the week at 1,756.03.
Narrower Gap – The U.S. trade deficit dropped to $26 billion in May, the lowest level in more than nine years. The 9.8 percent drop from April surprised economists, who had expected the deficit to increase to $30.2 billion. The annualized deficit rate is about $350 billion, roughly half of the $695.9 billion for all of 2008. The weak U.S. economy has lessened demand for imported goods, a trend that economists expect to continue.
Service Shrinks Slower – The U.S. services sector scored an index reading of 47 in June, up from 44 in May and better than the 45.5 reading that economists had predicted. The index is calculated by the Institute for Supply Management, with readings below 50 indicating sector contraction. Although June marked the ninth straight month of contraction in services, the month’s reading was the best since the index was at 50 in September 2008.
Less Interest on School – On July 1, interest rates on variable federal Stafford and PLUS loans dropped from 4.21 percent to 2.48 percent, the lowest rate in the federal student loan program’s history. The new rates are effective through June 30, 2010, and apply to loans issued between July 1, 1998, and July 1, 2006. Student loan holders can only consolidate once, so the new rates don’t apply to previously consolidated loans. Eligible graduates can get more information through the Federal Direct Loan Consolidation program at www.loanconsolidation.ed.gov.
WEEKLY FOCUS – Countdown to College
This article begins a three-part series on helping your child or grandchild prepare for the financial responsibilities of going to college.
A 2005 study by Nellie Mae, a student loan financing company, found that the average college freshman already carries over $1,500 in credit card debt. By the time students graduate, that amount has nearly doubled – and that doesn’t include other debt, such as student loans. Credit card companies have become masterful at targeting teens and young adults, who grew up watching parents use credit or debit cards. Free gifts, rewards programs and the school logo on the card (you do want to support your school, don’t you?) are just a few ways that college kids get hooked up with too much available credit at high interest rates.
Parents and grandparents can play an important role in helping students learn the basics of having a credit card. No annual fee and the lowest interest rate possible are no brainers for getting a card. To prevent overspending, the student – or parents or grandparents, if they are co-signers on the account – can request a lower credit limit than most cards start with. As the co-signer, you can usually request a duplicate account statement via mail or email, which you should review with the student monthly.
Late fees can be a major contributor to spiraling debt problems. Set up electronic payment from a checking or savings account (yours or the student’s) and specify whether the minimum payment or full payment should be deducted. Students should understand that a credit card is not an ATM, and therefore shouldn’t be used for cash advances.
Explain to your student how credit ratings work and why multiple credit cards, even if unused, can damage credit ratings. Encourage your student to stick to the one card you’ve helped him or her select and resist the temptation to open additional accounts for the free gift card. These amount to buying breakfast cereal to get the prize in the bottom.
For more ideas on how to discuss credit cards and other financial issues with your student, watch for the next article in this series or call our office. We’re happy to help with money issues affecting every generation of your family.
* 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# 298951