Even the most stout-hearted investor rejoiced when November drew to a close. Uncertainty reigned throughout the month as investors fretted about the election outcome and the transition to a new administration against a backdrop of evidence of continued economic weakness.
It seems to be a cruel irony that the last trading day of the worst month for equities in two decades fell on Halloween. October has long been dubbed "the cruelest month" given the propensity for market crashes, 1929, 1987 and 1997 for example, to occur within these thirty one days.
It wasn't nature's hurricanes impacting the Texas shores that dominated September headlines. Rather, it was man-made financial hurricanes impacting the shores of the Potomac and Hudson Rivers, followed by landfall on the Atlantic Coast of Europe, which garnered media attention with double digit losses in most equity markets.
Those crazy, hazy, lazy days of summer ... at least crazy and hazy describe the investment markets in August. The Dow Industrials
crossed the 11,500 line no less than six times during the month as it gyrated between the July close of 11,378 and inter-month high of 11,715 only to close at 11,544 at month end for a 1.5% gain. As noted on the following chart other
With seventeen of July's twenty-two trading days completed equity markets seem to have recovered from their earlier low levels. The combination of the 'moments of truth' that come in the form of quarterly corporate financial reporting, the failure of Indy-Mac Bank and the imagined lack of confidence related to our government sponsored
mortgage insurers rekindled the credit crisis with investor fears returning to mid-March level when the Fed orchestrated the Bear-Stearns intervention.
Equity prices entered 'Bear Market' territory as both the Dow Industrials and the S&P 500 declined 20% below their respective record levels set last fall. Some better
than expected results from major banks, action in Washington to support Freddie Mac and Fannie Mae and a 14% decline in crude oil prices seems to have restored some investor courage to allow stock prices to recover to their present levels.
It is beyond the scope of this writing, or our capabilities, to predict the month end numbers but ...
Equity bulls wrestled with the reality of inflation in June; when the month ended inflation
won. The relentless march of energy prices to new records was reflected in a double
digit increase in May's Producer Price Index (PPI) which was reported in early June.
The bullish enthusiasm of April encountered a dose of reality in mid-May when the
Producer Price Index (PPI) was released. Although inflation at the consumer level
(CPI) seemed surprisingly benign when it was released, producer prices were reported
to be sharply higher.
After five months of losing value equity investors were treated to a winning
month in April when all of the major indices reported gains of at least 4%. The
month started with a bang on 'April Fools' Day' when Lehman Brothers confirmed
they could raise capital and would not be following in the downhill footsteps of
Bear-Stearns. Those investors whose positions were based on additional banking
failures (i.e. short sellers) clamored to stem their losses by buying stocks which
pushed market prices higher.
Credit markets dominated media attention in March as it became apparent
that the extreme risk aversion that had afflicted the markets last summer had
returned. While stocks traded in sympathy, bond markets reacted adversely to
announcements of further declines in housing-related assets, balance sheet quality
of credit insurance companies and rumors regarding the ?counterparty? risk of
transactions among major investment banks.
February 29 marked Leap Year Day for 2008. It also marked the day the equity
bears chose to come out of hibernation resulting in markets surrendering their hard
earned gains to close in the red for the month of February.
It may have been the Patriots and the Giants that were featured in the Super Bowl
but it was the bears that ruled the equity markets in January. Investors wrestled
with the outlook for the current expansion of the U.S. economy while the drumbeat
of additional sub-prime mortgage-related bad news continued.
The perception and reality of investment risk collided in mid-2007. The result wasn't pretty. The concept that risk could be reduced by distributing fractional interests among many parties was sorely tested last year when the holders of these interests, and their respective lenders, sought to determine their market value. When buyers failed to materialize at previously anticipated prices lenders demanded additional collateral, or loan repayment, to restore their previous 'comfort level'.