A Week in the Rearview – week ending 12/5/08
In the headlines
A look at some of the market movers over the past week:
- Though Black Friday sales looked good, investors feared tight margins on those sales
- The National Bureau of Economic Research concluded that the US entered a recession in December of last year
- Fed chief Ben Bernanke suggested that the Fed could look to push rates below 1%
- The Big Three US automakers were back on Capitol Hill this week making their case for a bailout
- Auditors strongly urged more oversight for the TARP funds
- GE cheered investors with an update that promised to keep the dividend intact
- Yahoo! continues to get bounced around and has recently found itself in AOL‘s sights
- November auto sales were ugly
- Prominent economists are calling for an ever larger government stimulus package
- The Fed’s beige book didn’t paint a very positive picture
- Mortgage applications were surprisingly strong
- Retail sales dropped by the most in almost 40 years
- More than a half million jobs were cut last month, bringing the unemployment rate in November to 6.7%
Commentary
The market just couldn’t hang on to the positive gains from the Thanksgiving week. Kicking off this week, the S&P plunged, knocking off nearly 9% of its value. Tuesday and Wednesday saw some recovery before another drop on Thursday and finally a surprising gain on Friday (more on that in a minute).
The news this week focused on two main areas — economics and automakers. The automakers were back on Capitol Hill this week looking for government funds to keep them going. Though all three companies are skating on thin ice, General Motors and Chrysler seem to be in the most dire need of quick cash. Congress has continued to play its cards close to the vest on this one, but it would seem it faces a tough decision given the number of jobs represented by the auto industry and the amount of money that has been given to financial firms that were also driven to need by mismanagement.
Economic news hardly helped investors’ psyches this week. Reports were consistently negative, with the employment reports sounding a particularly dour note as unemployment ticked up to 6.7%. The NBER, considered the official US arbiter of recessions, also came out and officially declared the US in a recession this week and said that we’ve been in a recession since December of last year.
Of particular interest to investors, though, was the reaction to some of the poor economic news. The release of unemployment numbers on Friday, arguably the worst report of the week, was shaken off by investors through the trading day and the S&P finished Friday with a 3.7% gain. This could suggest that investors are beginning to see at least a pinpoint of light at the end of this tunnel.
Looking ahead
It’s another busy economic schedule heading into next week. Pending home sales will get some attention early in the week as investors continue to look for some sign of a housing floor that will help stabilize the rest of the economy. Later in the week initial unemployment claims will be watched closely after the big losses last week and the general employment concerns. The Producer Price Index, retail sales, and a preliminary report on consumer confidence in December will all be important releases on Friday.
There will be a few earnings announcements of note next week, including Costco, but the earnings schedule has wound down from the third quarter rush and will continue to be relatively quiet until fourth quarter results start coming out. Instead, company news next week will likely continue to focus on the situation with the Big Three US auto makers as well as the potential impact that the proposed Obama stimulus plan could have on specific companies.
On a broader note, if you’ve been following the news, you no doubt are thoroughly confused as to what to believe when it comes to stocks right now. Some experts seem to be of the belief that you should sell everything and sit out of the market for the next couple of years. Swiss investment bank UBS, on the other hand, recently said that the S&P index could rise 53% next year. That’s a pretty big range!
Meanwhile, you’re likely to hear few espousing the strategy that we’ve recommended week after week — that is, maintaining a consistent investing schedule and not worrying about what the market does in the short term. Why won’t you hear that? Quite simply because it’s too boring to sell newspapers and it would put TV viewers to sleep. Fortunately, our primary concern is helping you build a retirement nest egg, not selling newspapers or attracting TV viewers.
In fact, as the disagreement among “experts” shows, it’s nearly impossible to accurately time what the stock market is going to do, and that’s why we don’t bother trying to guide you when to jump in and jump out. However, we do realize that in these times of economic distress there may be a natural inclination to want to do something to help improve your financial position. While we do recommend that you put aside the stock market crystal ball, we can share a few active steps that you can take to help make sure your financial house is in order:
- Create a budget – A budget is an invaluable tool in managing your finances. If you don’t have one already, there’s no better time than the present to get down and dirty with your credit card statements and set a budget for yourself.
- Make sure you’re contributing to your retirement fund – Don’t let the turbulent times scare you out of continuing to build your retirement fund. Make sure that setting aside money for your 401(k) plan is part of your budget.
- Make sure you have emergency savings – This may seem like a luxury, but the three to six months of living expenses that most financial advisors recommend that you have set aside offers great peace of mind in times like these. From personal experience, I’ve found that once you add this into your budget you get used to it very quickly.
Economic downturns are simply a part of the economic cycle, and just as sure as we’re in a recession right now, this will at some point transition into a new economic expansion. For now, your best bet is to make sure that your financial house is in order and that you’re continuing to contribute to your retirement plan. Outside of that, though, try not to let your portfolio pull you away too much from the rest of your life. After all, it’s the holidays, and regardless of where the stock market is, enjoying the company of friends and family is free.
