Dow Jones Off To Worst Start of New Year Since 1932
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It's like being in the first minute of the game and your already behind 10 to nothing! Last week was the worst first three days of a new year for the market since 1932. The country was in a recession then and 1932 was the year the great crash in the market bottomed out. It was also before the Securities Exchange Act of 1934. Other legislation has followed through the years, the latest of which is the Sarbanes-Oxley Act of 2004 which redesigned the federal securities law.
These acts and related statutes form the basis for regulation of the financial markets and their participants. Along with self-regulatory organizations, they have served to keep much manipulation and fraud out of the markets. This is mentioned because notwithstanding the volatility we have experienced in the market over the last months, the market is still within 10% of its record high of 14164.53 set on Oct. 9, 2007. A 10% decline traditionally defines a correction.
To the extent you could consider the market moving somewhat normally, much of that is due to the Acts mentioned above. The regulations are strict and the penalties for violations are severe. So O.K. we have regulations, but what about the natural forces that impact the market? What is the cause of this awful start in 2008?
You could point to the growing concern that the U.S. economy is headed toward recession. The weak jobs report on Friday was a major catalyst. Non-farm payrolls rose just 18,000 in December, well short of analysts' expectations and the weakest performance since August 2003. The Dow Jones Industrial Average fell 256.54 points or 2% on that news Friday and is down 3.5% for the first three days of 2008. That wiped out more than half of the 6.4% gain for all of 2007.
Besides the jobs data, a J.P.Morgan downgrade of chip giant Intel weighed on the technology sector. The tech-heavy Nasdaq Composite Index was off 3.8%, or 98.03 points to 2504.65, its worst one-day point loss since Sept. 17, 2001. Add to all of this the continuing subprime debacle and the disappointment over the Fed" weak action with interest rates, etc. and you can come up with myriad reasons for the market's poor performance.
One interesting piece of data from Ned Davis research is what has happened to equity markets in an election year. During the pre-election year 2003, the equity markets posted positive gains, with all four major indices up for the year. While pre-election year has historically been the best performing year of the four during a presidential cycle, the election year itself has been almost as promising.
However, many believe that most economic policies take approximately two years to fully implement. This is usually the case with a new incumbent. What new monetary and fiscal policies will be instituted, no one knows. And what the market hates the most is the unknown. Perhaps that accounts for the hangover we are experiencing. In any case, remember to keep your risk within your tolerance and keep ahead of inflation.
I invite your questions.
Or Contact Jerry Cole at:
509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
(The opinions expressed are solely those of the author and not Gen worth Financial Securities Corporation.)509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
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