Stock Market Commentary
For the week of October 20, 2008
The Market
The major indexes found positive ground last week after dropping precipitously the week prior. Trading see-sawed throughout the week as the markets sought an end to the decline. The Dow finished the week up 4.79 percent to 8,852.22. The S&P gained 4.61 percent to end the week at 940.55, and the NASDAQ added 3.75 percent to close the week at 1,711.29.
Improved Social Life – About 50 million Social Security recipients will get a 5.8 percent bump in benefits beginning in January 2009, taking the average monthly check from $1,090 to $1,153. The cost of living adjustment (COLA) is the largest increase since 1982, when benefits jumped 7.4 percent. It is more than twice the 2.3 percent increase recipients got in January of this year.
Flat Inflation – The Consumer Price Index for September came in flat after dropping 0.1 percent in August. Analysts had expected an increase.
Fewer Pink Slips – First-time unemployment claims declined for the week ended Oct. 11 to a seasonally adjusted 461,000, below the 475,000 that economists had predicted.
Late Changes – Only 44 percent of American men between the ages of 58 and 62 who are currently active in the workforce are still employed by the same employer they had at age 50 (Source: Forbes, BTN Research).
From Top to Bottom – In the nine bear markets for the S&P 500 since 1957 (not counting the current downturn, which is the 10th bear market since 1957), the average decline from the stock index’s peak close to its bear market low close was 31.5 percent. The average length of time from the stock index’s peak close to its bear market low close has been 12.3 months (Source: BTN Research).
Home Values – There are 76 million households nationwide that own their home. The number of households that own their home free and clear of debt (24 million) is twice that of the number of households (12 million) that have mortgages in excess of what their house is currently worth (Source: Wall Street Journal, Moody’s, BTN Research).
WEEKLY FOCUS – Fear, Greed & Opportunity On Wall Street
Warren Buffett has often been quoted for his investment philosophy, “Be fearful when others are greedy, and be greedy when others are fearful.” Buffett repeated that philosophy Friday in a New York Times opinion piece, where he said he’s buying U.S. stocks for his personal portfolio to the extent that they will soon comprise 100 percent of his account.
On Oct. 9, 2007, the Dow reached a historical high of 14,164 points. The pendulum had swung to its furthest bull market reach. When the exuberance of the run-up let go, the pendulum swung fast and hard in the opposite direction, with the Dow dipping below 8,000 two weeks ago. That momentum took with it many companies that have experienced little change in the actual value of their cash and assets, dropping their share prices. In essence, the market put these stocks on sale, even though the quality of the item had not declined.
A Kiplinger article, 10 Things That Are Going Right, gives some examples of blue chip companies selling at a discount: AT&T, at about eight times its estimated 2009 earnings with a 6 percent yield; Cisco Systems for 10 times estimated earnings for its July 2009 fiscal year; Johnson & Johnson for just 13 times 2009 estimated earnings. According to S&P’s Compustat Research, nearly 10 percent of the approximately 9,200 stocks it tracks have recently traded below the value of their per-share cash holdings.
In his Times piece, Buffett agreed that the current economic condition has plenty of negatives, including rising unemployment and slowing business activity due to the credit crunch. Stocks, however, will likely begin to rise before the economy and consumer sentiment show signs of recovery. “So if you wait for the robins, spring will be over,” he wrote.
Equity opportunities do exist in the current markets, depending on your risk tolerance and investment horizon. If you’d like to explore the feasibility of adding specific companies to your portfolio at this time, please call our office to schedule a review of your portfolio. We can help you determine how best to capitalize on Wall Street’s current mark-down mentality.
The foregoing information and opinions are for general informational purposes only. Securities America, Inc. does not guarantee the accuracy and completeness, nor assume liability for loss that may result from the reliance by any person upon such information or opinions. Such information or opinions is subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sale of any security or offering of individual investment advice.
* 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. Written by Securities America. SAI# 288856
