Weekly Stock Market Commentary 7 21 2008


Stock Market Commentary
For the week of July 21, 2008

The Market
With the financial sector delivering mixed quarterly results in the past two weeks, the major indexes still finished the week with significant gains. After finishing below 11,000 for the first time in two years, the Dow came back with a 483-point gain Wednesday and Thursday, the largest two-day percentage gain since October 2002. The Dow ended the week up 3.63 percent to 11,496.57. The S&P gained 1.73 percent for the week to finish at 1,260.68, and the NASDAQ rose 1.95 percent to end the week at 2,282.78.

Weekly Stock Market Commentary 7 21 2008
Source: Morningstar.com. * Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three and five-year returns are annualized. The S&P, excluding “1 Week” returns, is a reflection of return to an investor, by reinvesting dividends after the deduction of withholding tax.

Start Now – A 30-year old saving $100 at the beginning of each month and earning 7 percent in a tax-deferred account until age 60 will accumulate nearly four times as much money as that of a 45-year old also saving $100 per month and earning 7 percent until age 60. This mathematical calculation ignores the ultimate impact of taxes on the account which are due upon withdrawal, is for illustrative purposes only and is not intended to reflect any specific investment or performance. Actual results will fluctuate with market conditions and will vary (Source: BTN Research).

Miss A Little, Maybe Miss A Lot –
Over the past 20 calendar years (1988-2007), the S&P 500 was up 11.8 percent compounded per year (total return). If you missed the 20 best performance days in those 20 years (i.e., 20 days in total, not 20 days each year), your average annual return lost more than 4½ percentage points and dropped to just 7.2 percent compounded per year (Source: BTN Research).

Backing Off – Approximately one out of every five participants (21 percent) in an employer sponsored 401(k) plan has reduced his/her elective employee deferral into their retirement plan during the current slowdown of the U.S. economy (Source: Investment News, Putnam Investments, BTN Research).

Something Is Out Of Whack – Assuming proven oil reserves of 264 billion barrels, the value of Saudi Arabia’s oil “in the ground” as of June 30, 2008, (valued at $140 a barrel) was $37 trillion, more than 2½ times the value of the total U.S. stock market ($14.1 trillion) as of the end of last month (Source: BP Global, Wilshire).


If gas prices have you looking at a smaller, more fuel efficient vehicle, do your homework on the total costs of trading in your guzzler for a sipper. You might find the decision a bit more complicated than simply saving a few cents a gallon on your commute.

There’s no doubt that smaller, more fuel efficient cars use less gas. According to Insure.com, trading a Ford F-150 pickup for a Honda Civic sedan will lower your gas expenses by about $2,000 a year. Other costs, however may be higher, such as insurance. The Insurance Institute for Highway Safety reports that drivers of small cars tend to be younger, less experienced and higher risk, which means they are involved in more crashes – which in turn means more claims and higher premiums.

Using our Ford F-150 and Honda Civic comparison, compare the insurance rate for a 40-year-old man who drives 12 miles to work and has coverage for liability of $100,000 per person, $300,000 per accident and $50,000 in property damage: if he drives the truck, he pays annual premium $597.13. If he drives the sedan, he pays $835.11 – a difference of almost $240 a year, according to Insure.com.

Insurance premiums aren’t the only hidden costs. A study by Consumer Reports found that if you have owned your vehicle less than three years, trading it for a new vehicle – even one that is more fuel efficient – may cost you more. In the first five years of ownership, depreciation makes up about 48 percent of total costs. Fuel costs make up about 21 percent. Also, if you have financed your car, you pay more toward interest and less toward principal in the first three years than in later years.

So while downsizing your vehicle may seem like a money-saving move, it may ultimately backfire. Like many financial decisions, this one requires thorough research and consideration of all the facts. We are always here as a sounding board and a guide to help you evaluate the options for spending, saving and investing your money. Feel free to contact our office any time you need a sounding board.

* 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. The Weekly Market Commentary is prepared by Securities America, Inc. for use by our
representatives. WMCSAI# 283523