Don’s Outlook 11/14/08
As I mentioned recently, the economic news would most certainly worsen before it improves. Although at times it is important to separate the economy and the stock market, the two are inextricably linked, and the unprecedented financial events of September and October are working their way into the economic data, putting additional pressure on stocks. The pre-election presidential rally, which brought the S&P 500 more than 18 percent higher, was pulled back toward annual lows this week as a barrage of bad news streamed in from every direction.
In fact, the bad news seemed to get worse by the day: unemployment increased, retail sales declined, and the financial crisis widened to threaten a collapse of Russia’s currency. Retailers cut earnings forecasts in anticipation of a difficult holiday season and reduced 2009 forecasts. Even Wal-Mart, which has thrived during these hard times, lowered its outlook for next year. Over the past month, consumer spending and industrial production declined, a direct result of the financial strain we all endured in October.
Yet we must not forget that much of this news is largely anticipated, and with so many market participants discounting such a pessimistic economic scenario, there is an even greater chance of a sustainable rally before year’s end. Some key indicators and events to watch include the current G20 meeting this weekend. Announcements and sound bytes emanating from this meeting may provide an indication of how policy makers intend to influence or control financial markets in the future. Also, the credit markets will continue to provide insight to the health or stress of institutions and the financial system overall. So far we have seen a slight improvement since the credit crisis inflicted its tremendous financial strain on all investments.
Finally, I will continue to watch the real estate market and housing prices for evidence of stability, as well as improvement in both consumer and business confidence indicators. Governments around the world are undertaking vast macroeconomic and fiscal stimulus programs that will provide both the private and public sectors with the tools they need to weather the storm; this will support aggregate demand growth over the next 12 months.
I urge you to continue to seek our advice during these difficult times. Each of your situations is unique and each must be addressed personally. Some of you may be focused on your personal debt and near-term financial obligations, while others may be focused on attaining your long-term financial goals. Please contact your representative to discuss your portfolios, your personal situation, and our outlook in detail.
