Bear Market Ahead!
Amidst concern about high oil prices, further fallout from the credit crisis, and a slowing economy, U.S. stock prices continued to fall and pushed the Dow Jones industrial Average to the brink of a bear market. The Dow has retreated nearly 360 points from its all-time high in October. This decline is almost equal to 20 percent – the traditional threshold for a bear market. Other indices also suffered declines. During the last week of June the S&P 500 dropped 3.1 percent and the NASDAQ fell 4 percent.
These events will also be accompanied by slump in earnings according to Michael Patterson of Bloomberg.com. “This week the news on earnings is that the second quarter is probably going to be worse than we thought,'' said Ron Sweet, vice president of equity investments at USAA Investment Management Co., which oversees $100 billion in San Antonio. “The old news keeps sticking around. It's energy prices, it's write-offs at banks, it's the slow economy.” The losses are spread over large portions of the economy – including financial firms, consumer companies, bond insurers, homebuilders, and manufacturers of high tech components
In a report released late last month, Goldman Sachs strategist David Kostin confirmed that earlier expectations for 2008 and 2009 profits were “too optimistic” and were likely to be reduced.
Investors should carefully analyze their portfolios in light of these developments and make appropriate adjustments, if necessary, to protect their assets.
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