Though many pundits anticipated volatility in 2008, few expected to see economic conditions deteriorate, consumer confidence dwindle, and the Dow sinking to 8,000 in November. While acknowledging that predictions –dicey in the best of circumstances—are especially difficult now, some market analysts are willing to share ideas about the upcoming year. Here’s a compilation of some recent comments:

• Realistic Assessment Beats Knee-Jerk Responses
  Though there may be a wide range of opinions on timing the market (or guessing when stocks will hit bottom), advisors urge investors not to get submerged in “gloom and doom” hype. Times are tough. Without a doubt, the financial crisis and bail-out, plus the crisis facing America’s automakers, make for scary headlines. Pundits agree that we are in a recession, but hope that we are a long way from the catastrophic conditions that caused the Depression. The economy is burdened by the credit crunch and the housing crisis, but has not yet reached the benchmarks that signal a depression. The economic crisis of 1929 resulted from a massive 25 percent unemployment rate, and a precipitous decline of 10 percent in economic output. The resources and communications technology used by governments today to stabilize the world’s financial system simply didn’t exist 80 years ago.

• Recovery Will Come
  The wreckage created by the financial crisis and the housing bust will not go away quickly, but the markets will rebound. Falling house prices, declining consumer spending, and the prospect of higher taxes –needed to pay for the bailouts and record federal deficits—may keep gross domestic product (GDP) growth relatively stagnant for some time. Some economists expect improved GDP growth by mid 2009, others think that unemployment will remain an issue—and keep the economy in a recessionary state—until 2010. Others resist the temptation to forecast timing at all, noting that market recoveries can take longer than logic might dictate.

• Smart Investors Are Staying the Course
  Advisors note that the implications of financial sector losses have not yet been fully assessed across other market categories. They urge caution and remind investors that logic dictates that stocks will rebound. Steep market declines have made certain stocks look very attractive relative to their projected earnings. However, this does not mean that an investment strategy developed in 2007 will work in 2009. The pros are doing their research, looking at companies that sell goods/services that people will continue to buy in tough times. Among those candidates, market analysts also look for stocks with significant potential up-side, free-cash flow yields, and minimal funding requirements. Some point out there are companies with good cash flow and stock prices that rival the exceptional values we last saw in the late 1980s. Advisors also note that market gyrations may have knocked investment allocations out of whack (i.e. stocks representing 70 percent in an individual’s portfolio in early 2008 may represent significantly less after recent losses), and that choosing a time to rebalance should be an important part of any revamped investment strategy.

As always, it is wise to consult your tax and investment professionals to assess your specific situation before making any strategic changes to your portfolio.