We had a pretty good streak going in the markets this week until Friday’s profit taking spoiler. The technology laden NASDAQ index was even in the black year-to-date, if only for one day. Despite the 20% plus gains over the last few weeks, all indexes remain in negative territory year-to-date and we remain in a treacherous bear market despite this rally. Continued caution remains the advice on investing.
Are we at a bottom yet? Read on for one theory.
The severity of this bear market is a crisis in confidence more than anything else. What started out as a crisis in subprime mortgage loans quickly spread to leveraged instruments including credit default swaps and subsequently evolved into a more generalized crisis in confidence.
Over the past few months, recession pressures and a gloomy consumer mood have propelled financial markets lower. That’s why consumer expectations, usually considered an indicator of future spending, is an important gauge to watch. The consumer outlook for the future, as measured by the University of Michigan/Reuters sentiment survey, fell in February before improving in early March. The Conference Board also releases a monthly consumer survey; in February, expectations fell to a 40-year low.
With massive government stimulus now in place, the consumer mood could brighten in the months ahead. New data for the University of Michigan/Reuters survey of consumer sentiment released Friday came in at 57.3 for March; that’s up slightly from February’s 56.3. It was also slightly better than expected, but still near the worst reading in 30 years.
The Conference Board results will follow next Tuesday. If a market bottom is truly in place, we may see an upturn in this measure as well, according to analysts.
I remain skeptical of government estimates of personal spending and income, home sales increases, and unemployment. First, they are estimates that ultimately get revised unfavorably when the real data becomes available. Second, the pundits as well as the administration are content to “spin” any good news to suit their current agenda and to take credit for any positive news. Finally, contrary to CNBC “entertainer” Jim Cramer’s assertions, the fundamentals of the economy still don’t support a solid upturn yet. First and second quarter 2009 earnings reports will likely bear this out, so I’m pretty sure that we’re not out of the woods just yet; and not for awhile anyway. Hopefully I’m wrong and this bull market will continue, but I continue to urge caution when investing.
Do you agree or disagree? I’d love to hear what you think.
Market Update For Week Ending 3/27/2009
| Index |
Close |
Net Change |
% Change |
YTD |
YTD % |
| DJIA |
7,776.18 |
+497.80 |
6.84 |
-1,000.21 |
-11.40 |
| NASDAQ |
1,545.20 |
+87.93 |
6.03 |
-31.83 |
-2.02 |
| S&P500 |
815.94 |
+47.40 |
6.17 |
-87.31 |
-9.67 |
| Russell 2000 |
429.00 |
+28.89 |
7.22 |
-70.45 |
-14.11 |
| International |
1,083.64 |
+29.04 |
2.75 |
-153.78 |
-12.43 |
| 10-year bond |
2.76% |
+0.14% |
+0.52% |
||
| 30-year T-bond |
3.62% |
-0.04% |
+0.93% |
International index is MSCI EAFE index. Bond data reflect net change in yield, not price. Indices are unmanaged and you cannot directly invest in an index.
Sam H. Fawaz CFP®, CPA is president of Y.D. Financial Services, Inc., a registered investment advisor. All material presented herein is believed to be reliable, but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions. Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions. No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions.
TheMoneyGeek Unplugged 
March 28, 2009 at 7:08 PM
Great commentary. I tend to agree more than disagree. I am optimistic about 2010. I believe now is a time of correction, a time for lean, a team to ferret out incompetance, a time to work hard and hold fast. We’ll get through this! For my scrappy investments, well I’m holding fast to a balanced portfolio that has suffered along with everyone else. At least I’m not losing my house as many of my neighbors are. Not yet at least. I do agree in Obama’s direction. He is working tirelessly. Yes he will make mistakes. Buy, unlike others before him, they will be honest mistakes from an intelligent man.
March 29, 2009 at 2:15 PM
Thanks for your comments and perspective Barbara. I agree with you about Obama–he is working hard and I hope he succeeds in his objectives. Hopefully, his choices to execute his plans are as effective as he would like them to be. We’ve seen a lot of stimulus and bailouts, so hopefully it has the intended effect. Unfortunately, it means that our kids will be saddled with our debt and we will have to live with higher inflation for years to come.