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“If a man
is proud of his wealth, he should not be praised until
it is known how he employs it.” ~
Socrates
The
Markets
The Dow Jones Industrial Average and the
S&P 500 both hit all-time highs last week as memories
of the credit crunch began to take a back seat to positive
news on the economy. The Labor Department reported that nonfarm
payrolls rose 110,000 in September. In addition, they revised
the July and August numbers upward by 118,000, according
to MarketWatch. The strong payroll numbers may suggest the
economy is chugging along nicely and in no immediate danger
of a recession. If true, that may be good news for stocks.
| Returns through 10/05/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
| Dow Jones Industrials |
1.2 |
12.9 |
18.7 |
11.4 |
13.6 |
5.7 |
| Nasdaq Composite |
2.9 |
15.1 |
20.9 |
12.4 |
20.0 |
4.9 |
| Standard & Poor's 500 |
2.0 |
9.8 |
15.4 |
11.1 |
14.7 |
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.
THIRD QUARTER REVIEW
Many
investors probably wish they had spent the last few weeks
of July and all of August on a desert island, out of touch
with the to day-to-day market gyrations that characterized
the last month and a half of a volatile third quarter. However,
the main indexes emerged from their summer drubbing and,
by the quarter’s end, the Dow Jones Industrial Average
was up 487.01 points, or 3.6%, at 13895.63, ahead a respectable
11.5% for the year. At 2,701.50, the Nasdaq, too, was up
more than 11% for the year and the S&P 500, at 1,526.75,
was up 7.7%. Having emerged from a mercurial third quarter,
here are a few questions we’ll be monitoring. How solid is the
market’s footing? How much longer can the broader domestic
economy be insulated from problems in the housing and credit
markets? How might international markets be affected? What
will be the long-term impact of the Fed’s September
14th decision to cut its benchmark rate by half a point to
4.75%? Will strong performance from international markets
(as of September 28th, the MSCI Emerging Markets Index was
up 26% since its August 16th low) continue to contribute
to a depreciating U.S. dollar? (For the two weeks ending
September 28th, the dollar has fallen 2.8% against the euro
and is down 8% for the year.)
When it comes to investing, there
never seems to be a dull moment!
HOW CONFIDENT ARE CONSUMERS?
Consumer spending
fuels the economy and consumers appear to be handling the
subprime crisis and late summer market volatility in stride,
avoiding a free-fall in confidence. The Reuters/
University
of Michigan Surveys of Consumers found consumer confidence
unchanged in September from August. Notably, however, one in four homeowners reported in
the September survey that they thought the market value of
their home had recently declined,
and one in five homeowners anticipated the market value of
their home would decline during the year ahead.
In another
measure, however, the Conference Board Consumer Confidence
Index, which had declined in August, fell further in September.
The Index now stands at 99.8 (1985=100), down from 105.6 in August.
The Present Situation Index decreased to 121.7 from 130.1.
The Expectations
Index
declined to 85.2 from 89.2.
According to Lynn Franco, Director
of the Conference Board Consumer Research Center, the Consumer
Confidence Index is now at its lowest level
in nearly two years. Franco said, “Weaker business conditions combined
with a less favorable job market continue to cast a cloud over consumers
and heighten their sense of uncertainty and concern. Looking ahead, little
economic improvement is expected and with the holiday season around the
corner this is not welcome news.” Looks like the stock market is
paying little heed to this forecast.
THE HOUSING MARKET'S WOES CONTINUE The subprime mess continued spilling over into the
housing market. The third quarter featured weak sales of
both new and existing homes and paltry profits for homebuilders. Yes,
would-be homebuyers
with good credit can still get mortgages, but their purchases
often depend on selling their old homes. And that’s getting increasingly
difficult as potential buyers, especially first-time homebuyers, face
more hurdles
in obtaining financing.
Take a look around your own neighborhood and you’ll probably come
to the conclusion reported recently in The New York Times: there are
a flood of homes on the market. In fact, the Times reports there are
almost 4.5 million nationwide, a figure that’s nearly doubled since
early 2005, when prices were on the up swing and home builders enjoyed
hefty profits. Even more concerning, many homes have been on the market
for a while. Of the 178,000 completed new homes that were available for
sale at the end of July, the Times says fewer than 15% were sold in August.
That ’s
the lowest rate in more than a decade.
As the S&P/Case-Shiller index
of home prices continued to report prices falling during the quarter,
the question looms as to how long
the divergence in performance between the home-building sector
and the rest of the economy can continue.
THE THIRD QUARTER, ACCORDING TO THE NATION'S TOP
BRASS...
Leaders of America’s top companies expect some
softening of U.S. economic conditions in the next six months, according
to Business Roundtable’s third quarter 2007 CEO Economic Outlook
Survey. The CEO Economic Outlook Index, which indicates how CEOs of leading
corporations believe the economy will perform in the six months ahead,
declined moderately to 77.4, a four and a half point dip from 81.9 in
the second quarter.
Asked if recent credit market turmoil would impact business
prospects, 60% of CEOs said they do not expect substantial
effects. Of the 40% of CEOs who do expect effects, roughly
62% foresee a weaker overall U.S. economy.
Best Regards,
P.S. Please feel free to forward
this newsletter to family, friends, or colleagues.
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