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"October: This is
one of the particularly dangerous months to invest in stocks.
Other dangerous months are July, January, September, April,
November, May, March, June, December, August and February." ~
Mark Twain
The
Markets
September
turned out to be a solid month for the markets as the Dow
Jones Industrial Average rose 4.0%, the S&P 500 gained
3.6%, and the Nasdaq gained 4.1%, according to Reuters.
It was also a big month for crude-oil futures as the price
of a barrel of benchmark crude surged 11.4%. For the quarter,
crude-oil futures rose 14.6%, while for the year they’re
up 22.7%, according to MarketWatch.
With that kind of surge
in oil prices, you’d think
the stock market would feel the pinch, but so far, it hasn’t
had much of an impact. As of last Friday’s close,
the Dow was within 1% of its all-time high.
Maybe oil doesn’t
matter much anymore?
Many of you will remember back in the
1970s when oil was the top story. Oil and gas prices surged,
inflation got
out of control, and the U.S. was mired in “stagflation.” It
was so bad that in his 1974 State of the Union Address,
President Nixon said, “Let this be our national goal:
At the end of this decade, in the year 1980, the United
States will not be dependent on any other country for the
energy we need to provide our jobs, to heat our homes,
and to keep our transportation moving.”
So how’d
we do on that goal? Not very well. In 2006, about 60% of
the petroleum consumed in the U.S. was imported
from foreign countries, according to the Department of
Energy. The good news is, we have become more efficient
users of petroleum and as consumers, we only spend about
4% of our disposable income on gas today versus over 6%
in 1980, according to The Wall Street Journal.
While higher
oil prices hurt consumers in the pocketbook, it helps others
in the petroleum business chain, such as
oil companies and their various vendors, suppliers and
investors. With the stock market chugging along, it appears
that there are enough people “benefiting” (and
we use that term loosely) from higher oil prices to keep
the economy rolling and the stock market happy.
| Returns through 09/28/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
0.6 |
11.5 |
19.0 |
11.3 |
12.9 |
5.7 |
| Nasdaq Composite |
1.1 |
11.9 |
19.6 |
13.0 |
18.2 |
4.8 |
| Standard & Poor's 500 |
0.1 |
7.7 |
14.3 |
11.2 |
13.4 |
4.8 |
Source: Yahoo! Finance, Barrons
Past performance is no guarantee of future results. Indices
are unmanaged and cannot be invested into directly. Three-,
5-, and 10-year returns are annualized. Assumes dividends
are not reinvested.
Top Headlines:
- Consumer
Confidence dropped
sharply this month as it fell to 99.8, down from an August
number of 105.6. This level marks the lowest Consumer Confidence
since November 2005. (9/25)
- Durable
Goods orders fell 4.9% in the month of August
as airplanes and other transports dropped 11.2% for
the month. The market reacted to the upside after the report
due the possibility of further Fed rate cuts on indications
of slowing economic growth and subsequent lowered inflation
pressure. (9/26)
- General
Motors (GM) found itself in turmoil as 74,000
United Auto Workers left GM plants in protest on
Monday. After two days of strike the automaker and UAW
reached
an agreement. (9/26)
- The housing market took another hit as New
Home Sales plunged 8.3% in August. A 21.2% drop in sales over
the past year has put the housing market at its slowest sales
rate since June 2000. (9/27)
- Consumer
Spending reported its fastest gain in two years
as the figure rose 0.6% for the month of August.
Another key economic indicator, core consumer price inflation,
was up 0.1% in August. This puts core inflation
at 1.8% for the year, marking its lowest level since 2004. (9/28)
IN THE RETIREMENT RED ZONE, the period
five years before and five years immediately following retirement,
even a short-term market downturn can have a significant
impact on your future retirement income stream. Accordingly,
to extend the football metaphor, just as they do when a team
approaches the goal line and threatens to score, emotions
tend to run high.
In fact, a new study entitled “Behavioral
Risk in The Retirement Red Zone” identifies five dominant
emotions – fear, regret, inertia, susceptibility, and
aggressiveness – that can cause you to react to market
uncertainty in ways that could harm your portfolio. Specifically,
80% of survey respondents registered high or moderate degrees
of regret and 71% reported high or moderate degrees of fear,
emotions that could cause you either to hesitate to take
action or be less likely to take on necessary, managed risks.
Significantly, although the report sponsored
by Prudential Financial, Inc. found that three of four investors
are affected by their emotions to a moderate or high degree,
only 35% believe emotions impact their investment decisions.
Clearly, although behavioral finance, the study of how emotions
affect financial decision-making, has gained ground since
Daniel Kahneman was awarded the Nobel Prize in 2002 for his
work in the field, there ’s still work to be done.
According to the study results, for most
investors, the first step may be the most difficult. Because
you are less likely to be swayed by emotions if you recognize
that emotions can influence your decisions, simply understanding
more about your decision-making can mitigate the effects
of behavioral risk on your portfolio. So, open up to your
spouse, friend, or family member, and, remember, we’re
always ready to listen or answer questions.
HOW MUCH DO YOU NEED TO SAVE FOR
COLLEGE? According to the “Upromise College Preparedness Report
Card,” U.S. parents and teens tend to overestimate the cost of
college. In the same way it’s difficult to gear up and begin a
weight loss program if you have significant pounds to lose,
the report speculates that the exaggerated perception of costs may overwhelm
parents
and contribute to inaction when it comes to college funding.
Specifically, the study found parents overestimate
annual tuition and fees for a public, four-year university by more than
four times the amount estimated by the College Board ($25,155 vs. $5,836),
and those for a private four-year college or university by more than
twice the College Board estimates ($46,712 vs. $22,218). Interestingly,
the study found that the median amount that parents say they could pay
annually for college is nearly $10,000, an amount that would cover the
average tuition costs of a public college or university, according to
the College Board.
Although the importance of calculating a future income
stream is stressed in retirement planning, it’s surprising how
frequently that calculation is skipped over for college funding. Like
anything in life, you likely will be more successful with college funding
if you set a specific goal and develop a plan to achieve it…and
we’re here to help.
What is the missing word in this October
verse by Inez Rice? "October skips along the lanes,
It kicks the leaves and ------ with rains."
Click here for the answer.
Best Regards,
P.S. Please feel free to forward
this newsletter to family, friends, or colleagues.
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