Market Update for January 30, 2009

It has been as expected another volatile week in the markets. At least this week has had more of an upward trend as opposed to downward. Interestingly, there have actually been some promising signs as of late with corporate earnings that have been in line or even better than what analysts were expecting. As I have mentioned to you in previous e-mails and on the radio show, the stock market is known as a leading economic indicator. It tells us what is expected to happen with corporate earnings some 6 to 9 months down the road. I suspect that we may have seen the bottom in the market but I won’t be confident of that at least until early summer.

On the real estate front things continue to worsen as the Case-Shiller index reported a record decline in home prices for the year ending in November. Boston was listed as one of the cities with a record percentage decline. Adding to this problem is the fact that it has become increasingly difficult for many to obtain financing as lending requirements have tightened dramatically relative to a few short years ago. Prices are expected to continue to fall through 2009 and few expect a recovery in the short term given the fact that people do not want to buy a house when they believe prices are still falling and they are concerned about their job.

As for the economy, as most people on Main Street see it, is in very tough shape. I told you back in November and December that I expected record layoffs to occur in the first quarter of 2009 and continue at a slower pace for at least the next quarter. So far my expectations are correct. I just hope the second quarter layoffs come at a slower pace. I do not expect to see signs of recovery as measured by increasing employment statistics until late 2009 or perhaps even 2010.

What can this information tell us ?

1. Keep your resume updated and be proactive in a job search as it is quite possible that you like many will get the proverbial pink slip. 
2. Cut your expenses to the best of your ability and take advantage of the low interest rate environment to refinance and consolidate debt when applicable.
3. Do not discontinue contributions to investment accounts. In fact you should consider increasing them as at some point the market will most likely rebound and right now stocks are relatively cheap. The stock market usually recovers long before the economy as it is a leading economic indicator
4. In general, be very cautious of real estate unless you are well capitalized and have a high level of confidence in your cash flow.

I’ll keep you posted as new information comes to light. In the meantime keep smiling; better days are ahead. Exactly how far ahead is anyone’s guess. Let’s just hope it is sooner rather than later.