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Market Update For Week Ending 5/18/2007 |
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Market Update For Week Ending 5/18/2007
May 15, 2007 It seems like every time I try and turn my focus away from the economy something falls out of place and the media and Wall Street strategists' return to doom and gloom. This time it is the slowdown in the economy that has folks worried. Remember last year when there was all this clamoring for the Federal Reserve (the Fed) to hike interest rates even higher to stop the "surge in inflation"? Well the Fed stopped hiking, thank goodness, and the inflation surge never happened. Instead, the housing market tanked, slowing, but not stopping overall economic growth. Now however, many are running from one side of the economic ship to the other and are worrying about this slowdown. It is enough to make your head hurt. Truth be told, I did expect less of a housing drop than we got, but with that said, the unemployment rate is still way down at 4.5%; payroll employment is 1.9 million higher than this time last year; after-tax and adjusted for inflation personal income is up 2.9% over the last 12 months; and the S&P 500 stock price index is up 16.6% over the last year! Meanwhile inflation has been basically flat. The Producer Price Index (PPI) inflation rate has fallen one percentage point over the last year and the "core" PPI has been flat at a low 1.6%. The Consumer Price Index (CPI) inflation rate has also fallen and the "core" CPI is up two tenths of a percent to 2.3%. This news has been good for the bond market, with yields falling about one half percent since this time last year. I doubt that there will be much more of a drop in housing. It is pretty hard to imagine a "housing crisis" with mortgage rates at 6%, low unemployment, rising personal income and household net worth at a record high $56 trillion dollars. And, as I said last time, I think that weak business investment is temporary and I expect better trade numbers, so I think the economy is just fine. I continue to think the Fed's work of keeping inflation low is done and that they will likely reduce rates, perhaps as early as this summer which should help the bond market. I think the overall equity market is still in good shape with decent valuations and good fundamentals. I tend to worry about the strong spots, not the weak spots in equities. I worry about Value, International, Emerging Markets, Energy, Commodities and Precious Metals. All have had tremendous performance runs that may reverse one of these days. So I am watching and worrying more about the last four years' winners and looking for signs of a rotation in market performance back to Growth and other underperforming asset classes and sectors. As always, please do not hesitate to call me with any questions or concerns. And, I promise to try and not talk about the economy at all next time Yours truly, JAMES FRAWLEY ChFC, CFS
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Westside Investment Management 2444 Wilshire Blvd #303 Santa Monica, CA 90403 (310)315-9400 Securities offered through Linsco/Private Ledger, Member NASD/SIPC |
