The Market Today
February 2009 Market Recap Government actions take center stage Sluggish economic conditions persisted in the U.S. and around the globe in February, as employment weakness and continued uncertainty in the banking system continued to weigh on consumers’ psyches. Government intervention took center stage, however, as various governments and central banks pushed forward with initiatives to counteract widespread recessionary trends and to boost spending power and optimism on Main Street, in the hope of reinvigorating economic activity and preventing the present contraction from worsening. Here at home, those efforts were highlighted by the passage of a $787 billion fiscal stimulus package on February 17, as well as the unveiling the very next day of a $75 billion mortgage relief plan targeted at preventing foreclosures among delinquent or at-risk borrowers who meet certain qualifications. Markets, however, seemed more interested in the deterioration of current economic data than in any shot in the arm that government initiatives could provide down the road, and stocks delivered disappointing results for investors. The S&P 500 Index fell by 10.99 percent for the month, while the Dow Jones Industrial Average was off by 11.72 percent—marking the second consecutive month of declines for the major indices to start 2009. Economic weakness persists E As employment conditions have deteriorated, mounting evidence indicates that people have—either by Residential housing, likely to be a key barometer for economic resurgence, continued to plod along in search of a new equilibrium. According to the National Association of Realtors, sales of existing single-family homes nationwide fell by 5.3 percent in January on a month-to-month basis, and prices fell by 3 percent—leaving them down more than 14 percent versus one year earlier. It isn’t apparent just how this evolution will ultimately play out, but it is clear that the market will yet impose further adjustments on supply, demand, and prices before reaching a new state of order. New administration makes its mark Confronted with these challenging conditions, the new presidential administration has wasted no time in getting its version of counter-recessionary programs in place. The first and largest by far is the $787 billion economic stimulus package, which aims to create millions of jobs in the coming years, increase future consumption, and improve our nation’s competitive positioning on several fronts. It targets spending on sustainable energy initiatives, modernization of our health care system, and upgrades to the national infrastructure. Other key provisions include tax cuts to businesses and families, aid to state governments and community organizations, and spending on various social welfare programs such as unemployment insurance. In a separate initiative, President Obama unveiled a $75 billion mortgage relief program intended to help up to nine million high-risk homeowners avoid foreclosure. While the program is intended to help stabilize the ailing housing market, its scope is intentionally limited in hopes of circumventing an outcry against bailing out unworthy borrowers. Looking ahead These initiatives at home, and others enacted by central banks and governments abroad, represent a massive global commitment by policymakers to counteract the contractionary forces in play in the global economy and to prevent the direst potential outcomes from becoming reality. The stimulative measures will no doubt take time to gain traction—raising the possibility that the current slowdown could exacerbate before all is said and done and meaning that patience will also be an important ingredient to the eventual recovery. That recovery, once begun, will likely be one of incremental improvement rather than a sudden and drastic reversal—but, in our expectation, it will begin from a more stable and sustainable base than the most recent, housing-fueled expansion. 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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conomic data remained weak in February, reinforcing the concept that it may yet be some time before a recovery takes shape. Fourth-quarter 2008 gross domestic product (GDP), which declined by 3.8 percent according to initial government estimates, was subsequently revised lower to minus 6.2 percent. Data on employment, housing, and consumer spending all showed some level of deterioration as well. The unemployment rate increased to 7.6 percent, as 598,000 jobs were lost in January, the biggest monthly decline since December 1974. The U.S. Department of Labor reported that nonfarm