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| What a difference a year makes |
Fri. Feb 26, 2010 |
What a difference a year makes. At the end of last February the S&P 500 was down nearly 19% for the year and had dropped more than 53% from the high in October 2007. Many banks were in trouble or had closed, the credit markets were completely shut down, over 700,000 jobs were being lost each month and it looked like we were in the midst of a total economic meltdown. A year later, while the economy is certainly not growing at the pace we hope to see in the near future, we have come a long way in a short time. At the end of February the S&P 500 had gained 2.9% for the month, is down 1% for the year and 50% above were it closed last February. The S&P 500 has now closed higher for 10 of the last 12 months.
After dropping in January the market continued lower in early February. This was not surprising as February, despite being an up month on average, has been a tough month of late, losing value 6 consecutive years and ending in the red 8 of the last 9 years. We started the month, as we always do, with the government jobs report, and although the report showed nearly 20,000 jobs were lost in January, we did see jobs added in the important manufacturing sector for the first time in 3 years, and the unemployment rate did drop to 9.7%. Despite this arguably better than expected news on the labor front the market closed lower at the end of the first week as traders chose instead to focus on Greece, and the problems that debt burdened country is having. The concern centered around the possibility they would default on their debt, and that default would then have a ripple affect on other financially strained countries in Europe, creating a domino like series of defaults that would, at the very least, put any economic recovery on hold. Several meetings of the European Union countries reassured investors that other countries in Europe were not only aware of the problems Greece is having, but public statements that they would lend them a hand reassured investors and stabilized the markets. Following the 3 day President's Day weekend traders seemed to have put Greece on the back burner and were concentrating on quarterly corporate earnings that continued to come in better than expected, moving the markets higher to the end of the month.
We are often asked how the market can be moving higher when all of the news is negative. For months we have been suggesting the upward move in the market is not so much a rally, as a backpedaling to a level that is more consistent with a severe recession, rather than 1929 Part II. Remember, good news does not sell papers, so the primary method the various media outlets have of attracting your attention is to lead with something shocking and negative so you will be compelled to buy the paper or magazine and/or turn on the radio or TV. As we said in the first paragraph, economic conditions today, while certainly not optimum, are far better than they were a year ago and even better than they were six months ago. The major banks appear to have stabilized, job losses have nearly ended, corporate earnings have been much better than expected and nearly every economic number is showing some improvement. One additional factor to the markets rebound is that traditional competitors, such as real estate and bank certificates of deposit, are not currently of interest to most investors. We still need to see credit flow more freely, real estate prices began to appreciate so potential buyers will stop being rewarded for doing nothing, and although we are seeing an end to layoffs, we need to see job creation. We believe all of these things are on the horizon and will ultimately take us back to a healthy growing economy, with stock prices that reflect that better environment, but the timing is still unclear.
If you know someone who would be interested in learning more about Greenberg Financial Group, we continue to offer our weekly retirement income workshops every Thursday @ 3 PM, now in two convenient locations. Natalie Fernandez is at Sam Hughes Place at 6th and Campbell and Dan Martin is at Sur-real at Campbell and Skyline. There is no need for a reservation.
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