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Randall Financial Group News

15-Apr-08

2008 Q1 Market Summary

Our year-end 2006 market commentary pointed out to readers that questionmarks were on the horizon. We were concerned that the pattern of year over year growth in the stock market, which began in 2003 could not continue. We warned investors then and in subsequent commentaries, that a market correction was inevitable. We knew we were right, we just didnt know when it would happen. After a volatile 2007, which saw the Dow Jones Industrials set 2 records, a general stock market decline began in November of 2007 and continued well into the 1st quarter of this year. And while the major downward momentum seems to have abated somewhat, markets remain near their lows and volatility remains at record highs. It would seem that the when is now.

The chief market debate in 2007 was as to whether events in the residential real estate and credit markets would affect the overall economy. However, it is no longer in doubt that a significant decline in home values and subsequent implosion of the sub-prime mortgage market is being felt by the broader economy. The bursting of what now most are calling a bubble in the housing market has led to a significant global credit crisis, slowed world-wide growth, and general economic pessimism. The most recent and public result of the credit crunch was the near collapse of the countries 5th largest investment bank Bear Stearns. An unprecedented last minute Federal Reserve backed bailout by JP Morgan Chase was the only thing that allowed Bear to avert bankruptcy.

The continued crisis in the housing and credit markets is coupled with steadily rising prices at the consumer and producer levels (chart at right). This has resulted in drastically slowed growth for the nations economy. Foreclosures remain at all time highs and many observers dont see things easing for another 6 to 12 months. While the classical definition of a recession remains 2 straight quarters of negative GDP growth, for most practical purposes the U.S. economy is in recession. A weaker dollar and rising inflation rates have sent commodity prices significantly higher. Gold, crude oil, and gasoline are all at or near record highs while the U.S. dollar is trading at historic lows vs. the Euro and other foreign currencies. Volatility will likely continue through the remainder of this year, particularly in the financial sector as traders look for signs of either recovery or further deterioration.

To help stem the slowing growth, the Federal Reserve has moved aggressively since October to lower interest rates. In addition, an unusually united Congress and President moved swiftly to pass an economic stimulus package that will result in most taxpayers seeing $600 checks in the mail come summer. But with consumer confidence down dramatically (chart below), many are concerned that, rather than stimulating the economy with purchases, consumers will pay off bills and stash the money away for a rainy day. Regardless of the results of the recent Fed action, Fed chief Alan Bernanke has sent a clear signal that the countries central bank will do whatever it takes to stabilize the economy and get the U.S. back on a growth heading.

As we head into the second quarter of 2008, market levels appear to have stabilized. In fact, most of the downward move that has occurred this year happened in the first four weeks of the year. Since that time major up and down moves have worked to off set each other as market watchers trade on any news, lacking clear signs on the overall direction of the economy. The next major test will come shortly as major U.S. corporations begin reporting the results of first quarter earnings. This will give us the best indicator of how our current economic slow down has impacted corporate profits.

An often-stated market cliché is that trees dont grow to the sky. Market gains are inevitably followed by corrections, which are again followed by recoveries. The only way to minimize losses and participate in recoveries is to maintain a well-balanced portfolio and stay fully invested. We will continue to maintain that strategy and are optimistic that much of the worst is behind us. We look forward to another recovery.

Information presented here is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

© 2008, Randall Financial Group, LLC All rights reserved. Please Visit www.Rfinancialgroup.com

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