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Week of May 29, 2007
The Markets
The market was like a yoyo on a string last week.
According to Barrons.com, on Monday, the Standard & Poor’s 500 Index rose above its previous record high (about 1,527, reached on March 24, 2000). By the end of the trading day, it had dropped back down below the record. On Tuesday, the S&P 500 once again rose above its record during the trading day, but fell again before the close. The NASDAQ Index also reached a new 6-year high that day. On Wednesday, the S&P went up into record territory, and dropped down again as ex-Federal Reserve Chairman Alan Greenspan interrupted the market’s play by expressing concern about a possible contraction in the Chinese stock market. Thursday brought good news: durable goods orders were healthy for April and new home sales jumped 16.2% during that month. All the positive news drove the markets lower, as investors realized that economic strength could mean the Federal Reserve won’t lower rates this year. On Friday, stocks went back up.
What is an investor to think? Well, if you’re a contrarian, now may be a good time to invest. Opinion polls of investor sentiment, like the one that can be found on the website of the American Association of Individual Investors, show high levels of bearish sentiment. According to Barrons.com, recent readings of bearishness have been at levels similar to those reached at the lows of the bear market.
Returns through 5/25/07 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
Dow Jones Industrials |
-0.4 |
8.4 |
19.8 |
10.1 |
6.2 |
6.3 |
Nasdaq Composite |
-0.1 |
5.9 |
15.7 |
9.2 |
9.1 |
6.1 |
Standard & Poor's 500 |
-0.5 |
6.9 |
18.4 |
10.8 |
7.1 |
6.0 |
Source: Yahoo! Finance, Barrons Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three-, 5-, and 10-year returns are annualized. Assumes dividends are not reinvested.
If you think you can avoid risk by keeping your money tucked away in the most conservative types of investments—like bank savings accounts, certificates of deposit (CDs), or money market funds—you need to think again. It’s true that historically more conservative investments have offered greater opportunities for preserving principal. However, these investments often offer low returns, which exposes your assets to a different type of risk: the risk posed by inflation.
Inflation, or the rising costs of goods and services, can affect your ability to live comfortably after you retire. Imagine that inflation averages 3% each year for the next 30 years. At the end of that time, groceries that cost $100 today would cost about $250. If this seems unimaginable, ask one of your older relatives, “What did you pay more for: your first house or your last car?”
If your goal is to maintain the standard of living you enjoy today after you retire, then you may have to invest your savings so they beat inflation over time. One way to approach this problem is to invest some of your assets in stocks, which have historically provided higher returns than some other types of investments. This may help you keep pace with or beat inflation. It’s important to recognize that stocks also have greater risk than other types of investments, so you might not want to invest your entire portfolio in stocks.
If you have any questions about your investments, please call our office. We’re here to help.
Weekly Focus – Do you love fruits and vegetables? You may find prices going up soon, according to experts. Ever since mites destroyed wild honeybee populations during the 1980s, farmers across the country have depended on hired honeybees to pollinate crops. Commercial beekeepers haul colonies of honeybees to farms, moving from field to field as the blossoms open. Foraging honeybees pollinate more than three-quarters of the fruits and vegetables grown in the United States, including almonds, apples, cherries, blueberries, peppers, watermelons, and cucumbers.
Recently, beekeepers have been finding empty hives; the bees are vanishing. So far, Colony Collapse Disorder has claimed about one-quarter of the 2.4 million honeybee hives nationwide, which could have a significant effect on our nation’s agriculture industry. No one is certain why the bees are disappearing. Cell phones, pesticide contamination, genetically modified crops and fungal diseases are being investigated as possible sources of the problem. Sometimes, inflation is driven by unexpected events.
Best regards,
Fredrick J. Livingston, CLU, CFP
Securities offered through LPL Financial, Member NASD/SIPC
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
* The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks.
* The Nasdaq Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
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