The Market Today
January 2009 Market Recap Presented by Adam Brooks, Daniel Evans, & Jared Pearson
A tentative start to 2009 The early days of the New Year offered a brief respite for investors, as markets staged a welcome rally in the first few trading days of 2009. The upswing proved short-lived, however, as the major indices reversed course and gave ground throughout the remainder of the month. On January 20, all eyes turned to the inauguration of President Barack Obama, behind whose platform of change Americans had rallied, with hopes that his administration could successfully lead us out of the economic doldrums in which we now find ourselves. At present, it appears he faces a drawn-out task, as economic data released in January repeated the uninspiring, monotonous refrain of recent months. The next wave of governmental relief appears near at hand, however, as the president’s proposed stimulus package sped through the House of Representatives late in the month, although not a single Republican cast a vote in favor of the measure. Senate Republicans have raised concerns about the scope and type of the proposed spending, increasing the likelihood that the legislation will undergo meaningful changes before presidential pen is put to paper. Predictably soft economy Economic reports in January revealed that U.S. businesses and consumers remained under some duress. The lone bright spot in the cavalcade of worrying data was that much of it was already anticipated. Real consumer spending, after adjusting for changes in prices, fell by 0.5 percent in December, according to U.S. Department of Commerce statistics—the sixth decline in the past seven months. With Americans showing a penchant to spend less and save more, the national savings rate climbed to 3.8 percent in December, the fourth consecutive monthly increase in that statistic and the highest rate since 1999 (excluding one-time events such as the May 2008 tax rebates). Gross domestic product (GDP) shrunk at a 3.8-percent annual rate in the fourth quarter, which was far less negative than the consensus estimate of a 5.4-percent decline.
Against this economic backdrop, stocks declined for the month, with the S&P 500 Index falling 8.6 percent and the Dow Jones Industrial Average declining 8.8 percent, reversing what had been a remarkable, 24-percent rebound from the recent low on November 20, 2008. Washington-watch Economic distress and flagging asset prices have government officials in high gear these days, working to formulate the right mix of policies and stimulus to put us on a path toward long-term prosperity. The proposed stimulus package, passed by the House on January 28, provides for $819 billion in tax cuts and business incentives, as well as funding for social, infrastructure, and sustainable-energy initiatives. The total represents about 3 percent of GDP in each of the coming two years. Coincidentally, the increase in savings and reduction in consumer spending seen to date is also on track to equal roughly 3 percent of GDP this year, indicating that the size of the stimulus package may not be random. In the Senate, however, it is expected that critics of the House version of the bill will push for less spending, bigger tax cuts, and a more dedicated effort to support suffering homeowners, many of whom have seen their equity vanish as home prices have tumbled. The concept of a “bad bank” also garnered attention late in January. The crux of the idea is that the government would step in to buy illiquid, hard-to-value assets—notably, mortgage-related securities—from banks and financial institutions. This would allow those institutions to resume normal functioning and lending without the specter of additional losses hanging over their heads. The tactic holds some appeal but is far from a panacea for curing all that ails the banking industry at present. A quick cure-all is unlikely to materialize, however, and so incremental steps in the right direction may be all that we can expect. Disclosure: Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. All indices are unmanaged and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. ### Adam Brooks, Daniel Evans, & Jared Pearson are financial advisers practicing at Brooks Financial Advisors, LLC, 1567 SW Chandler Ave, Suite 102, Bend, OR 97702. They offer securities and advisory services as registered representatives of Commonwealth Financial Network®, a member firm of FINRA/SIPC. Brooks Financial Advisors is a Registered Investment Adviser. They can be reached at 541-330-6411 or at brooksfinancial@bendcable.com. Authored by John Blood, CFA, chief market strategist, at Commonwealth Financial Network. © 2009 Commonwealth Financial Network®
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Businesses continued to adapt to the changing economic reality by scaling back production and reducing staff, with each day seeming to bring a new announcement of planned layoffs. In the last week of January alone, companies across a wide range of industries announced job cuts totaling more than 100,000. New claims for unemployment insurance reached 542,000 in December, the highest level since 1982.