A Week in the Rearview - week ending 5/16/08
In the headlines
A look at some of the market movers over the past week
- HSBC (NYSE: HBC) started out the week announcing that bad debt expense for the first quarter wasn’t as bad as some had expected
- Research in Motion (Nasdaq: RIMM) fired back against Apple’s (Nasdaq: AAPL) iPhone
- Investors were encouraged by a lackluster, but not terrible, report from MBIA (NYSE: MBI)
- Hewlett-Packard (NYSE: HPQ) announced a $12 billion acquisition of EDS (NYSE: EDS)
- Wal-Mart’s (NYSE: WMT) earnings beat forecasts but its outlook didn’t encourage
- US retail sales painted a mixed picture
- US foreclosures are only getting worse
- ArcelorMittal (NYSE: MT) rode global demand to a favorable first quarter
- CBS (NYSE: CBS) announced that it is acquiring CNET (Nasdaq: CNET) for $1.8 billion
- Inflation in April was less than had been previously forecast
- Billionaire Carl Icahn has jumped into the Yahoo! (Nasdaq: YHOO) fray
- Macy’s (NYSE: M) is planning to open FAO Schwarz toy boutiques in 685 of its stores
Commentary
It’s not a stretch to say that it was a really good week for the markets. Not only were they up, up, and up, but they were notably docile. As I’ve said previously, in a recovery I’m looking for not only a market that’s moving up, but a reduction in the type of extreme volatility that suggests that nobody has any clue what’s going on. We had both this week, and it’s become a bit of a trend. It’s been nearly a month now since the last time the S&P 500 has moved more than 2% in a single day, and the S&P is up around 4% over that period.
Back in mid-March, we hit a low on the S&P that put the index down just a hair over 20% — just barely enough for investors to really consider it a market downturn — from the intraday peak in mid-October of last year. Since then we’ve charged back around 13% and remain a bit under 10% from that October peak.
The recovery may seem a bit hasty, after all, we’re still seeing anemic economic growth and weak consumer spending and it’s expected to get worse. But it’s important to keep in mind that the economy and the stock market are not one in the same. Stock prices began declining when economic growth was still robust, and, as it has happened in the past, they are expected to recover ahead of the economy.
Looking ahead
We’ve still got inflation, recession, oil prices, consumer spending, the housing market, and financial company write-downs — to name a few — that all have a lot of power to spook the market. And of course we don’t want to discount the unknown, because it’s actually the risks aren’t even on the radar now that will really put some fear into investors.
Of course that’s not to say that investors will get spooked. Unless something really unexpected shows up or the credit market starts deteriorating at an accelerated pace, the market will likely drift flat-to-slightly-up until we start getting second quarter earnings reports. Many companies have said that they expect the second quarter will continue to be slow but that growth will pick back up in the back half of the year. Come second quarter earnings season we will start hearing from companies whether or not that will be the case, and afterwards we’ll certainly see a reaction from the market one way or the other.
Not surprisingly, we continue to recommend that if you’re investing for the long term, your best bet is to tune out the day-to-day concerns of the stock market and financial press. Keeping a diversified portfolio of high quality funds and investing on a set schedule is a great way to earn attractive returns with little effort.
