Dow Jones Is Up 0.2% For the Month of July
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The Dow Jones Industrial Average, which leapt more than 450 points over the previous two sessions, on Thursday of this last week gave back 205.67 points. Despite the drop, the Dow ended July up 0.2%, its first monthly rise since April, the only other month the average has risen this year.
It was however, a good start for the second half of 2008. In the last 15 years, the second half of the year has seen positive performance in the market. The S&P index of 500 widely held stocks, which is generally considered representative of the market, has averaged a 4.9% gain in that period. The best second half performance took place in 2003 (up 15.1%) and the worst second half performance occurred in 2002 (down 15.1%) (source BTN Research).
The Commerce Department reported that the economy grew at a 1.9% rate in the second quarter in its revised report on gross domestic product. Economists had expected a growth rate of 2.4% last quarter. The fact is the economy is still growing, albeit at a much slower pace than in the recent past. It is difficult, therefore, to understand why many are declaring we are in a recession when the economic conditions do not meet the accepted definition of a recession (two consecutive quarters of negative growth).
The outlook for the economy wasn't given much brightness from former Federal Reserve Chairman Alan Greenspan. He told CNBC this week he still thinks there is a 50% chance of a recession because of the credit-market crunch and subprime mortgage crisis. He noted that not only the U.S. economy is slowing, but also the economies of Europe and Asia. Plus he said, falling U.S. home prices are "nowhere near the bottom" and the housing slump is showing now signs of abating. To cap off his salient comments, Mr. Greenspan said Fannie Mae and Freddie Mac were "a major accident waiting to happen."
Whether Mr. Greenspan's look into the future of Fannie and Freddie will prove to be sage, depends on the success of new housing legislation that was signed into law this week by president Bush. The measure provides for a temporary but unlimited government line of credit for the agencies which guarantee about half of the nation's mortgage loans. The Treasury Department has the power, until the end of 2009, to lend them emergency money or buy their stock.
With the market now into five digits ( above 11,000) and daily moves in three digits (100 or more), it is difficult to keep things in prospective. When you see a percentage loss in your portfolio one month, you tend to think it will be cumulative and be down that much again in the next month. One reason behind this reaction is all the financial "noise" consumers hear over and over again. Ten years ago, you didn't have the gobs of websites telling you how poorly the economy is doing. The media only reports the negative side of the financial news.
Because of this, it is more important than ever to take emotion out of your retirement planning and to not be short-sighted. Refresh your memory and look back on why you decided on a particular investment; why you decided on a particular asset allocation. Look at the historical performance and decide if it still makes sense. Once you get your fear in check, what looked like a precipice may only be a dip. Be realistic about your expectations. Take into consideration your life expectancy is longer than it was for your parents.
In the meantime, be sure 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 or of www.mybaycity.com)509 Center Ave, Suite #102, Bay City, MI
(989) 892-5055
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