Stock Market Commentary
For the week of May 25, 2009
The Market
Worries that a growing federal budget deficit may ultimately erode gains from the stimulus packages kept stocks falling for most of last week. The major indexes, however, all finished the week moderately higher, with trading light in advance of the Memorial Day holiday weekend. The Dow gained 0.21 percent to close the week at 8.277.32. The S&P rose 0.53 percent to finish the week at 887.00, and the NASDAQ climbed 0.71 percent to end the week at 1.692.01.
Cutback – Thirty percent of U.S. companies have either reduced the employer match to the firm’s 401(k) retirement plan during 2009 or expect to reduce it within the next year (Source: U.S. News & World Report, BTN Research).
A Million Fewer – As of March 31, 2009, there were 3.7 million existing homes for sale in the U.S. Just eight months earlier (July 31, 2008), the number of homes on the market was 4.7 million (Source: National Association of Realtors, BTN Research).
Other Stock Markets – The international stock index EAFE did not beat the S&P 500 on a total return basis in 2008, but had bested the domestic stock index in each of the six previous years (2002-07). Before that, the S&P 500 had a higher total return than the EAFE in 10 of the prior 13 years (1989-2001). The EAFE index is an unmanaged index that is generally considered representative of the international stock market. These international securities involve additional risks including currency fluctuations,
differing financial accounting standards and possible political and economic volatility (Source: BTN Research).
Stocks and Recessions – The two best years ever on a total return basis for the S&P 500 took place in 1933 (up 53.9 percent) and 1954 (up 52.6 percent). The U.S. was in a recession during the first three months of 1933 and during the first five months of 1954. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market (Source: BTN Research).
WEEKLY FOCUS – Taming Debt While Growing Savings
On Friday, President Obama signed the Credit Card Holders’ Bill of Rights, legislation that will restrict certain credit card practices and eliminate sudden interest rate increases and late fees. The legislation, introduced last fall, comes as Americans deal with more than 15 years of mounting credit excesses.
During the eight years of the Clinton administration, household debt grew 83 percent while personal income grew only 57 percent. The trend continued during the Bush years, as household debt grew another 88percent – double the growth in personal income, according to the Federal Reserve. Over the past decade, U.S. household debt has grown to equal 100 percent of our gross domestic product (GDP), as reported by the Commerce Department.
In December, the Federal Reserve was joined by the Office of Thrift Supervision and the National Credit Union Administration in revising regulations to prohibit banks from applying interest payments so as to maximize penalties and to require credit card companies to give holders at least 21 days to make payments. Those rules take effect in July 2010.
The Credit Card Holders’ Bill of Rights signed Friday, which will take effect in nine months, goes even further. It prohibits credit card companies from issuing cards to people under 21 without proof of means to pay or a parent or guardian as co-signer. Companies cannot increase rates for late payment until the customer is more than 60 days delinquent; if the customer pays the minimum balance on time for six months, the credit card company must restore the previous lower rate. Other provisions in the bill apply to rate increases in the first year the account is open and on existing balances as well as limits on fees and penalties.
Americans appeared to be adopting a self-imposed “debt diet” – in the third quarter of 2008, as consumer debt fell 0.8 percent to an annualized $30 billion, according to the Federal Reserve. That’s great news, but the focus on debt reduction has left many families wondering how to pay off loans near term and still save for long-term goals like college and retirement – particularly as employers freeze wages and bonuses and eliminate pension benefits and 401(k) matches.
The question of where your discretionary dollars go – toward debt or toward saving and investing – can be complicated and depends a great deal on your personal situation, including your age, your income, your existing savings and your long-term goals. Our office can help you analyze your need to save and invest while strengthening your financial foundations by decreasing your debt. We are happy to work in conjunction with your accountant or other financial professionals. Call us today for an appointment.
* 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# 297762
