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2009
Better Than 2008 So Far |
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Looks
like 2009 got started on the right foot as far as stocks are concerned,
with the major indices tacking more gains onto the ones we saw made on
the last day of 2008. We'll offer up a forecast for the coming year in
a moment. First though, we want to give you a quick review of 2008.
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Gladly
Closing the Books on 2008 |
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Though the sub-prime
debacle was underway well before 2007 came to a close, it was unlikely
anybody
could
have ever known that an unbelievable credit default swap fiasco
would have magnified just how much of a problem bad debt was. The echo
ripped into the investment banking industry, and continued to spread.
 The
end result was a 38.4% loss for the S&P 500, half of which was taken
since September. Financials took it the hardest, losing 52% over the
prior 12 months. Healthcare had it the best, 'only' losing 24% during 2008.
And fundamentally
speaking, many stocks probably deserved the beating they took. The
S&P 500's P/E ratio peaked at 26 in the middle of the year - the highest
level since 2004 (when it was on the way down from the '01 & '02
market that drove the P/E sky high). Of course, the market's average
P/E plunged shortly thereafter, back to the 19 area.... and it still could
sink some more when we get the next round of earnings news. (That's
not a cause for alarm at this point though.)
The economy
was at the heart of the market's problems though. You can't allow unemployment
to peak above 6% and also let confidence hit multi-year lows and then expect
consumer spending to soar. You certainly can't let a lack of oversight
of financial institutions inspire the desire to buy stocks either. And,
you absolutely can't stick the taxpayers with hundreds of billions
worth bailout bills and rightfully expect the market to perform
Was there
anything we missed? On the other hand, would it matter? No wonder
2008 stunk.
There's an upside
though.... one we're not simply tossing out there just to breed false hope.
We
do
expect
2009 to be considerably better for investors, taxpayers, and consumers.
Keep reading.
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What's
2009 Going To Be Like? |
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It doesn't do
anybody any good (us included) to spread sunshine and roses when that kind
of optimism isn't merited. So, don't misread anything about our
forecast. However...
 We're
looking for respectable gains in 2009. Why? It's not because
we expect another 1999, or a 2003, or a 2006, when the market was going
through the roof. No, 2009 is likely to be a pretty tough year actually...
a rebuilding year. However, all the cards are at least on the table,
and we know what we're dealing with.
The housing
market will still be shaky. The auto market is going to be even worse.
Taxes should be higher. Unemployment won't suddenly bottom out. And, we're
still likely to suffer more headaches stemming from a multitude of mortgage
debt problems. None of that is particularly good news, but if any of these
problems were going to cause the world to end, they probably would have
by now.
Perhaps the
only real good news in all of those problems is that they're all apt
to be priced into the stock market already. Of course, rebuilding the
economy is going to be good for stocks even before it's good for
the economy, which is the exciting part of the challenge from an investor's
perspective.
Still, without
a crystal ball, we have to take things one day at a time. With that
in mind, let's take a look at what the first trading day of the year looked
like.
If we didn't
know that the month of January was typically rife with reversals, we'd
be very optimistic right now. Knowing what we know though, we don't
want to get too excited just yet about Friday's substantial gains.
Still, even if we can't immediately follow-through, the last several
days have given us some much-needed technical hope.
 For
starters, all the market indices are above their 50 day moving average
lines now for the first time in weeks - a simple hint the 'bigger picture'
momentum has shifted for the better.
And second,
those same indices are above what had become intermediate-term resistance
levels.
Zooming in on
Friday
though, we'd be kidding everyone if we told you that we didn't think we
were overbought in the short run. In a bull market that wouldn't be a big
deal. We're not in a bull market though... not yet anyway.
If the recent buyers get just a little antsy and decide to turn
into profit-takers, there's a big risk of all the recent gains being unwound.
Or said another
way, let's see if the buyers remain as bullish when stocks are really
under fire.
Factor in the
substantial lack of volume behind the gains over the last three
trading days (for all the exchanges), and it's not like all the
planets are lining up perfectly for the bulls. It's not bad - it's
certainly far from great though.
So what we're
looking for is actually pretty simple. We need to see the bears take
one more swing, and fail to make a big dent. It would be perfectly
fine for the S&P 500 to slide all the way back to its 50 day average
line (and now the 20 day moving average line) at 885, as long as it didn't
fall under that mark. Once that level is retested and the market
recovers, then we can really start to be optimistic.
Like we said
though, January usually throws several curve balls. Stay tuned.
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
