Matt's 2007 Stock Market Wrap

Despite Doom And Gloom, Stock Markets Post Gain For 2007

The U.S. stock market finished out 2007 with gains in all three major indexes, despite the fear, uncertainty, and doubt about the economy - the credit crunch, real-estate slump, and a "looming recession" in particular.

Even though the Dow Jones Industrial average lost 101 points on New Year's Eve, it still ended the year up 6.4%, at 13,265. That ain't bad, but it is down quite a bit from a high of over 14,000, reached for the first time ever in 2007. The S&P 500 only rose 3.5%, but the tech-heavy Nasdaq Composite was up 9.8% on the year

Even though there were some impressive gains, there were some substantial losses. Citigroup, who apparently bought my mortgage from Dutch lender ABM AMRO this fall, was the worst performer of the blue-chip index, falling 47% on the year. Marketwatch.com reports "The banking giant was 'the poster boy' for this year's subprime-market meltdown and subsequent credit crisis."

The year 2007 grew increasingly volatile as the year went on. As the Arizona Republic reports:

As 2007 progressed, the market was characterized by rising volatility, with what seemed like day after day of sharp losses on Wall Street.

"From May 2003 through January 2007, the Dow never dropped more than 2 percent in a day," reported Phoenix investment firm Keats, Connelly & Associates. "That was a period of stock-market stability unmatched in more than a century, but it couldn't last forever."

Indeed, it didn't. In the second half of 2007 alone, the Dow fell 2 percent or more on nine separate trading days, with most of that coming after subprime-mortgage woes made headlines in August.

The Dow also had three daily gains of 2 percent over that stretch.

From what I'm reading around the internet, for 2008 it looks like technology and health care have a potential for growth, which makes sense with everything these days relying heavily on tech and an aging Baby-Boom population willing to pay for decent health care. Potential trouble stops could include the financial sector, auto manufacturers, and other transportation stocks, which also makes sense with the price of oil and trouble in the lending industry.

Looking ahead, the Arizona Republic goes on:

As 2008 unfolds, the key question centers on recession risks. A contracting economy could push stocks into a tailspin, as happened from 2000 to 2002. But if the economy can avoid a slump, the market could be poised to make it six winning years in a row considering that interest rates are easing, corporate profits are holding up and inflation so far remains under control despite a weak dollar.

"I think we're seeing the worst of the financial situation now," said Barbara Walchli, Phoenix-based portfolio manager of the Aquila Rocky Mountain Equity Fund. "I see slow growth or even no growth for the economy, but I don't expect negative growth," she said.

One wild card for the stock market is the election and campaign rhetoric. With no sitting president or vice president in the race, the field is wide open.

"The election will cause some anxiety," predicted Jeff Young, an adviser at First Financial Equity Corp. in Scottsdale. "It's a big unknown since no incumbent is running."

All in all, I'm going to have to agree with the cautiously optimistic outlook of the AZ Republic. I feel that the economy can probably weather the coming year without any major issues, even if the housing sector doesn't come back. I would not expect a lot of broad growth, but don't expect the market to tank, no matter what the Dominant Liberal Media would like you to think. I am pretty impressed with the resiliency of the U.S. consumer and markets in light of all of the volatility and overblown news about the subprime mortgage problems. Which, by the way, only make up something like 4% of the mortgage industry.

Sources: Arizona Republic, Marketwatch.com