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Just Another "Freaky Friday" for the Dow Jones Industrials

Unexpected Weak Jobs Report Triggers 249 Point Drop

September 9, 2007       Leave a Comment
By: Jerry Cole - Retirement, Investment

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Dow Jones Drops 249 Points
Just another "Frantic Friday"

September 7, 2007 was another "Frantic Friday" in what has become a string of such days in the past two months. The Dow Jones Industrial average fell 249.97 points, or 1.87%, to end at 13,113.97.

Both the S&P 500 and the Nasdaq were down similar percentages. For the week, the Dow was down 1.8% while the S&P 500 was down 1.4% and the Nasdaq was down 1.2%.

The catalyst for Friday's downturn was the unexpected weak jobs report. The report for August showed 4,000 fewer nonfarm jobs when economist had expected that 100,000 would be created. This was the first drop in four years.

It sent a shock through financial markets as investors scrambled to sell stocks and buy longterm government securities as a safe haven.

It would now appear almost certain that the Federal Reserve will cut interest rates when its policy-making Open Market Committee meets on September 18. Analysts said the only question was whether it will be a quarter-percentage point or a half-point reduction.

To what extent the recent turmoil in the subprime lending market and the credit market in general played a part in the jobs downturn, no one knows. It seems clear that support for the economy from rising employment will erode and the chances for a recession have heightened somewhat.

At the same time however, U.S. retail sales have benefited from the back-to-school rush and consumer confidence has remained relatively high. Exports are higher and the balance of trade has improved. Retail sales, excluding autos, are expected to rise by 0.3 percent in August, a Reuters poll showed. The University of Michigan consumer confidence data is expected to hold steady at 83.4.

With all the recent volatility we have seen in the markets lately, it is easy to understand how some people would just as soon be out of the market altogether. But then what would you do with any savings or retirement plans you may have? As discussed in the past, deposits at banks, money market accounts, or just putting money under the mattress puts you at risk. It puts you at risk to inflation.

Without some equities, your portfolio might be too conservative to outpace inflation. In fact, a recent survey by the Employee Benefit Research Institute reported that 37% of retirees found that inflation affected their retirement lifestyle more than they had expected.

Over the last 20 years, inflation has averaged 3.1% (Consumer Price Index from 12/31/76 - 12/31/06). So your savings would need to average at least that much a year just to keep up with the rising price of goods and services. Obviously, if you want to accumulate assets - or maintain a comfortable retirement lifestyle - you need to do considerably more than just keep up with inflation.

How much you put into equities depends on many factors. Your investment plan should be (sounds like a broken record) tailored to your unique financial needs, risk tolerance and goals. You will need some exposure to equities to accomplish this.

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.)

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Jerry Cole - Retirement, Investment

Jerry Cole has been a Financial Planner for almost 30 years in the Tri-City area and holds and MBA from USC.
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