According to the National Bureau of Economic Research, the recession in the United States officially began in December of 2007. Over the last 15 months, we have watched the market react violently to the economic slowdown. Just last week, the Dow Jones Industrial Average reached its 12-year lows, thus bringing us back to levels that we have not seen since 1997. Todd Kenyon of Seeking Alpha writes that “since 1900, there have only been two occasions where the Dow cracked 12-year lows: April 8, 1932 and December 6, 1974. In the first case, it occurred 3 months prior to the bottom. In 1974, it marked the exact bottom. In each case, the recession still had months to go, and unemployment was months from peaking. In 1974 the market rocketed 45% in six months, and about 65% in 15 months off the bottom.”
Throughout this process, we have been waiting for the market to reach attractive levels while maintaining downside protection for our client accounts. While we are not attempting to call the bottom, we do feel that the Dow has major support and unbelievable values at or near 6000.
For those with employee sponsored retirement accounts, such as 401k plans, we advocated a switch to a more conservative mix of cash and fixed income in the last blog. At this point, we now suggest that new contributions per pay period be directed toward income and growth stocks. Similarly, we recommend that our clients with mid- to long-term time horizons start dollar cost averaging back into the market with a low of 6000 in mind. It is important to understand that everyone’s financial situation is unique and there is no single strategy that works for everybody. For those clients looking for assistance and guidance regarding 401k/403b asset allocation, we would be happy to help you assess your options.
We still believe that the economy will start to show signs of life, especially within real estate, beginning in the summer. We expect any improvement in GDP to be gradual as consumers and companies deal with the credit market realities and the new saving mentally of the American people. However, once we start hearing positive news and investors feel confident that we have put in a final low, we will then witness a much improved market.
In an effort to facilitate this upturn and help bring the GDP back to its long-term growth potential, President Obama signed the 2009 American Recovery and Reinvestment Act into law on February 17. The economic stimulus package consists primarily of individual and corporate tax relief, infrastructure projects, and help for state and local governments. To read a brief overview of the package, please click here. The Obama administration believes that the keys to resolving the crisis revolve around shoring up lending, stabilizing housing prices, and reducing unemployment. The Tellone Management Group investment team, as well as investors throughout the world, will continue to monitor their performance in these areas.
Filed under: Economy, Investments, Tax Planning & Preparation
