A Week in the Rearview - week ending 5/23/08
In the headlines
A look at some of the market movers over the past week:
- The dance between Microsoft (Nasdaq: MSFT) and Yahoo! (Nasdaq: YHOO) is back on
- Electronic Arts (Nasdaq: ERTS) is still pursuing Take-Two Interactive (Nasdaq: TTWO)
- The National Association of Business Economics thinks that the US economy will return to growth after the second quarter
- Home Depot (NYSE: HD) couldn’t fight off the tough housing market conditions
- The government’s homeowner rescue plan is gaining momentum
- Leading indicators suggest that the economy is not quite in recession
- The producer price index rose less than expected
- The $53 billion buyout of BCE (NYSE: BCE) may be on thin ice
- The market didn’t like the insinuation that the Fed may be done cutting rates
- American Airlines (NYSE: AMR) announced a major capacity cut
- Home prices are continuing to plunge
Commentary
The recent optimism was tempered a bit this week as economic reports made investors reconsider how quickly they wanted to bid stocks back up from their lows. Not all of the news was bad — a measure of economic leading indicators rose for a second consecutive month, suggesting that the economy is not in dire straits. However, the producer price index — a measure of inflation — showed prices for goods other than food and energy rising more than expected.
More impactful was the release of the Federal Reserve’s minutes from its most recent meeting. In short, the notes said that the risks of inflation are now balancing out the risks to economic growth, which suggests that more interest rate cuts are unlikely. The market clearly took this as bad news, but it should be noted that this could also be read as the Fed’s belief that the economy is stabilizing and no longer requires resuscitation from rate cuts.
Looking ahead
What we can be assured of looking ahead is that the market will continue to bounce around. The overwhelming deluge of bad news seems to be over, and we now have more of a balance of good with the bad. Most analysts and economists continue to believe that the economy will see marked recovery in the second half of the year. Of course, however sure they may be of that, consensus projections often turn out to miss the target. For that reason, we continue to suggest that long term investors keep on their investing schedule and not try to time the market.
As captivating as the markets can be, sometimes the best investing medicine is to unplug from them. So, with that, go out and have a wonderful Memorial Day weekend!
