Stock Market Commentary
For the week of May 5, 2008
The Market
The Federal Reserve’s move last week to lower its fed funds rate by a quarter-point to 2 percent – the latest in a string of cuts totaling 3 percent – helped strengthen the dollar last week. On Friday, the government reported that employers cut fewer jobs than expected in April. The combination helped push the Dow above 13,000 for the first time since Jan. 3 and marked the third straight weekly rise for the blue-chip index, which closed the week up 1.32 percent to 13,058.20. The S&P also had a third straight weekly gain, closing up 1.18 percent to 1,413.90. The NASDAQ ended the week up 2.23 percent to finish at 2,476.99.
More Retirement Money – Retirement assets in the U.S. hit $17.8 trillion at the end of September, up from $17.5 trillion the year prior. Most of that money – $4.8 trillion is in individual retirement accounts, and mutual funds manage 47 percent of those assets. Retirement savings account for almost 40 percent of U.S. financial assets, according to the Investment Company Institute.
End In Sight – A survey of more than 1,000 American millionaires by Fidelity Investments shows that more plan to increase than decrease their equity holdings over the coming year. The second annual survey showed 27 percent of respondents planned to increase their exposure to stocks, compared to only 7 percent planning to decrease, and 31 percent expect to invest more in fixed income secuirty investments.
Treasury Revival – The U.S. Treasury Department announced last week that it would reintroduce the one-year Treasury bill after a seven-year hiatus. Also referred to as a 52-week bill, the one-year Treasuries will be auctioned every four weeks beginning in June. The bills give the government a way to borrow billions of dollars in cash to cover a budget deficit expected to reach an all-time high this year. The U.S. stopped issuing one-year Treasuries in February 2001 when the country experienced a surplus of $127 billion.
Stocks And Politics – In the last 50 years (1958-2007), the S&P 500 has been up 21.3 percent per year (total return) under a Democratic President and a Republican-led Congress, more than twice the 9.5 percent annual return achieved under a Republican President and a Congress controlled by the Democrats. The stock index gained 11.3 percent per year when the White House and Congress was controlled by the same political party. The worst stock performance came under a split Congress (up 6.2 percent per year) regardless of which party controlled the White House. 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 – Open Road or Open a Business
American entrepreneurs started small businesses at a rate of approximately 495,000 a month last year, an increase of 0.29 percent. The age groups most likely to launch a business were those 35 54. That trend coincides with a 2007 Merrill Lynch study showing of the nation’s 78 million baby boomers, 76 million plan to keep working in retirement, more than half plan to change careers, and many are foregoing the traveling retiree lifestyle in favor of building a new business.
Becoming a business owner later in life has its advantages: Your working years have given you skills and experience you may be able to market on your own. You also have the benefit of observing gaps in your industry that a small business could fill. And unlike younger entrepreneurs, you have greater financial resources at your disposal – which is why starting a business in your retirement years holds greater risk than it does for those in their 20s and 30s. You have less time to financially recover should your business fail.
If your retirement dreams include becoming your own boss, start early and be prepared for plenty of planning. You will need a thorough business plan and a retirement plan that allows you to fulfill your dream without betting the farm. Both plans need to take into account best and worst case scenarios. Your business could succeed wildly, creating unforeseen tax, estate planning and succession planning issues. Or it could fail, creating a whole different set of problems. Your plans should set some automatic action points – the point at which you would sell the business at its peak value and the point at which you would pull the plug.
Our office can provide counsel on a variety of challenges facing new business owners, especially those starting their enterprise later in life. Your professional team should also include an estate plan attorney, a business accountant, and an insurance professional. You may also want to consider finding a mentor with business ownership experience, preferably in your field, through programs such as SCORE and the Small Business Development Centers. For more on these and other services for entrepreneurs, go to the Small Business Administration (SBA) website at www.sba.gov.
* 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. WMCSAI# 276431
