31 December, 2007

2007 Ends with a Bearish Tone, Dow loses 100 points

The Dow ends the year down 101 points, and while the average is in positive return territory for the year (about 6.5%) the latter part of the year has become increasing volatile and negative. The credit crisis dominated the market headlines over the last few months and Big Finance has endured billions upon billions of losses in their asset valuations.

These bad bets have cost the big banks plenty as the hit list is broad and plentiful. Since Mid Year highs, there have been nothing but bad news from the Financial sector. (Apart from consistent blowout quarters at Goldman Sachs (GS))

  • Citigroup (C) is down 48%
  • Bank Of America (BAC) down 24%
  • Wachovia (WB) down 34%
  • Merrill Lynch (MER) down 46%
  • JPMorgan Chase (JPM) down 19%
  • Morgan Stanley (MS) down 31%
  • Lehman Brothers (LEH) down 24%
  • Bear Stearns (BSC) down 38%
  • Goldman Sachs down 14%
These numbers are staggering and many analysts are painting an even bleaker picture for the Financials in 2008. While I think there's the potential for big rebound gains into the 2nd half of the year for these companies my major worry is that once Dividends start getting cut, more investors will flee to other safe havens. The rumors of Citigroup needing to cut its dividend by 40% certainly have hurt the stock over the past couple of weeks.

There will be opportunities in 2008 for the Investor, as I feel the recession fears are overblown and selling based on those fears is overdone. The selling was done consistently throughout the past couple months, timed with the Federal Reserve Interest rate moves.

2007 will go down as the year of the iPhone from Apple (AAPL), and the popular mobile phone gadget has helped the technology company to another breakout year by more that doubling since the device's unveiling. Look for Apple to extend its reach with iPhone in the coming months (Europe, Asia etc.). Technology and Oil were the leaders for better parts of the year in 2007 and this will likely continue going into 2008. I believe there is tremendous commodity and trader pressure to get and keep oil above the $100 mark. Should this happen it will continue to put pressure on the consumer and big ticket spending (Homes, Cars) will soften still, putting further pressure on the overall market and North American economy.

Luckily though, all metrics the market has gotten lately have pointed to a stable and growing US economy, and consumers seem to be taking high gas prices in stride. All signs point to a strong Christmas season, led broadly by Technology (Gaming & gadgets), and with this the chip makers should see continued strong demand, specifically Intel (INTC).

It's the first end of year trading session for the WC Power Tech Fund Blog and I'd like to thank all the readers throughout the first few months here.

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