A Week in the Rearview - week ending 3/7/2008
In the headlines
A look at some of the market movers over the past week:
- Concerns started to turn to commercial real estate
- United Technologies (NYSE: UTX) made an unwelcomed offer for Diebold (NYSE: DBD)
- Under regulatory pressure, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) agreed to change appraisal standards
- US auto sales sagged in February
- Citigroup (NYSE: C) came under renewed scrutiny when reports surfaced that it would need additional cash injections
- Fed Chairman Ben Bernanke suggested that banks do more to quell the growing number of defaults
- Intel (Nasdaq: INTC) provided a weak outlook thanks to soft flash memory prices
- The National Association of Home Builders reported a sour outlook for housing
- Yahoo! (Nasdaq: YHOO) continues to do everything it can to out run Microsoft (Nasdaq: MSFT)
- Bond insurer Ambac (NYSE: ABK) finally came through with a much needed capital raise
- Thornburg Mortgage (NYSE: TMA) plummeted as lenders started asking for their money back
- Mortgage foreclosures aren’t getting any better yet, and home equity has fallen to 60-year low
- Retail sales provided some needed positive news
Commentary
In short, it was not a fun week for the US markets. Pessimism held center court most of the week and we finished close to the lows that were hit back in January. The stimulus for the declines continued to be more of the same. General economic data coupled with financial and housing industry reports continues to paint a picture of a stormy environment. Confidence in the economy and expectations of a near-term turnaround are, as of now, out of the picture. And though the government is doing a lot of talking about the problem, the actions taken to date haven’t provided much daylight.
The tune being played outside of the S&P 500 isn’t much more comforting. Energy and commodities have been providing much of the little positive momentum that is out there — since the beginning of October the S&P is off around 16%, while the average energy stock is up over 5%. Other sectors, such as consumer discretionary, technology, and financials, have fared worse than the index, with financials off nearly 30% since October. Though it had originally been hoped that overseas markets might hold up better than the US, the UK’s FTSE index has seen similar weakness to the US and Japan’s Nikkei has taken an even worse dip.
Looking ahead
The economic picture has not changed drastically from last week, even if the markets’ performance seems to say otherwise. Though there has not been any convincing data to show that we will be imminently turning the corner from the slowdown, there has likewise not been new data that would suggest that the current problems will cause long-term lasting damage to the economy.
In reading much of the commentary that comes from Wall Street and media outlets, it is important to remember the difference between Wall Street’s timelines and the timelines of most individual investors. Wall Street works in an environment where day-to-day action can be meaningful and one year often constitutes the long term. For this reason, pessimism over the coming three, six, or twelve months on Wall Street can constitute a good cause of significant pessimism. Media outlets have similar, if not shorter, time frames to Wall Street. News stories break on a day-to-day or even moment-to-moment basis and covering the long term, big picture meaning of these events is outside of the capacity of many journalists.
Further, since the goal in journalism is to attract readers, those stories that can create a sense of excitement, fear, or the like tend to get more air time than those that soberly weigh current events.
Retirement investors, on the other hand, look at the long term in five year or even decade increments. Economic slowdowns are not something to be ignored, but they are likewise not a reason for a long term investor to get excited over. A look back over the history of US GDP growth or stock market performance will show that the up and down cycles of the economy and the markets are simply part of the big picture. Historically, most investors have had the best success by not getting excited at market peaks, or scared away in market troughs.
