Stock Market News for July 2008

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Stock Market: Fed takes a Summer “Breather”

As we sailed into summer, predictions for the six months ahead remained cautious at best. The Federal Reserve officially stated what pundits were expecting—that their worries about a weak economy continue, but that inflation is now more of a concern than economic performance. By holding to the previous 2 percent short-term federal funds rate, the Fed has decided not to make consumers pay more for credit –affecting mortgages, car loans and other major purchases. The Fed noted that the economy remains weak, though slightly improved since April. Though the Fed was mute on the topic, many Wall Street experts believe that the $107 billion in stimulus checks might be responsible for this improved economic performance.

Many investment commentators see the Fed’s statement of June 25 as a compromise designed to appease Wall Street, which benefits from lower rates, whilst mollifying economists who want to see the opposite—tighter credit used to prevent escalating inflation. They note that the Fed’s decision is in contrast to the European Central Bank which plans to counter inflation with higher credit rates in July. Many experts anticipate a return to rate hikes later this year. They see the Fed’s decision to leave the short-term interest rate unchanged to be a temporary phase – a pause rather than any meaningful change in policy.

What does this all mean for the individual investor? Well…many investment experts suggest that the Fed’s decision is more of a “page holder” designed to get them to their next meeting (August 5) without committing themselves. With this in mind, they don’t expect major trends to emerge. No one is going out on a limb with bold predictions, but some say that a halt to credit rate adjustments— albeit temporary— is helpful to stocks. Reviewing the overall prospects for the markets, few analysts are truly bullish but some suggest that investors might want to look selectively for bargains. It depends on whom you want to believe, but here are some prevailing thoughts and recent data to ponder:

    • Some experts think that we may have seen the worst from this particular economic cycle. Although employment data and consumer spending don’t seem to be trending in a positive direction, some analysts believe a market rebound may be on the horizon.


    • The sectors that have been pummeled are: home builders, investment banks and department stores. All were down more than 33 percent as of mid-June, and the home building segment has taken a 44 percent hit. Airlines are now showing the extent of their wounds. Opportunities to pick up cheap stocks will be in the sectors that have turned in the worst performances, but choose carefully, not all will be good candidates for resuscitation.


    • If you are tempted to look for bargains, experts suggest that you avoid the worst of the losers, and bear in mind that consumer spending cut-backs are likely to continue, as are high energy costs. That being said, a few well-managed companies in the most battered segments have been punished more severely than their performance might merit.


  • There is good news among the gloom. The dollar is showing signs of a slight rebound after a depressing slide to record lows against the euro. The slow-down in the U.S will (and has begun) to affect the rest of the world allowing the greenback to benefit from slackening economic performance in Europe.

Whether you’re ready to look for cheap stocks or taking your cue from the Fed and are taking no action for a while, bear in mind that in both good and bad times, the advice of an expert investment advisor, careful research and patience are crucial.


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