May 14, 2008
By James C. King
2008 will go down as the third worst year on record for the Dow Jones Industrial Average. The other two were 1907 and 1932, which most of us don’t remember. For the year 2008, the DJIA was down 31.92%, the S&P 500 down 37.03% and NASDAQ down 40.54%, all including dividends. Most other asset categories were also down or up only modestly.
The recession, which experts indicate began in November of 2007 and predict to continue for several more quarters, has a limited correlation to the stock markets. We believe from a technical, duration and magnitude point of view that the DJIA bottomed in November at the 7500 level. The recovery will likely mirror the decline -- somewhat volatile. However, we believe that the valuations of companies have discounted the economic environment and represent sound investments at current levels.
The amount of government (taxpayer) spending, both domestically and internationally, should start to mitigate the stress on the financial system with an accompanying flow to the rest of the economy. During 2009 this should influence the security markets. Beyond 2009, things once again may become hazy (inflation, taxes, energy, etc.). That said, up market cycles usually last 24 to 36 months.
Let’s hope for a happy and prosperous New Year and thank you for your business in 2008.