Markets at Midyear 2008 - Stocks in the First Half
Friday, July 04, 2008PAUL KANGAS: Just four days ago, we marked the end of the year's first half and as Suzanne Pratt reports, most stockholders were certainly happy to get past those six months.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Shocking, event driven and very, very volatile. That's how market pros describe the stock market as it twisted and turned through the first half of this year. S&P investment strategist Sam Stovall says the volatility actually began in 2007, but just got more intense.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Over the past 12 months, we have had more than 16 days of declines of 2 percent or more which is actually four times the average.
PRATT: The January to June period was a horrible stretch for the major averages, with the Dow, S&P 500 and NASDAQ all suffering double digit losses. Lehman Brothers strategist Simeon Hyman says serious concerns weighed on investor sentiment.
SIMEON HYMAN, EQUITY STRATEGIST, LEHMAN BROTHERS: The first half was driven by high commodity prices, difficult housing situation and a very difficult credit market. Those were the big drivers. Those are the headlines. Those are what people have been reacting to.
PRATT: The Dow began the year on January 2nd at what would be its highest point of 13,261. Its lowest point of just under 11,350 came six months later on June 22. In between, it was a rocky road for stock investors. Sub-prime mortgage-related write downs and losses at major financial firms like Citigroup, Merrill Lynch and Lehman Brothers punctuated trading throughout the winter months. But the biggest crisis of confidence came in March when the Dow stumbled again as Bear Stearns struggled to avoid bankruptcy. By mid-March, the Federal Reserve and JPMorgan had come to Bear's rescue. The central bank also restored some stability to financial markets when it agreed for the first time to provide liquidity to investment firms. UBS strategist Mike Ryan says it was important for investors to know that the Fed was on the job.
MIKE RYAN, CHIEF INVESTMENT STRATEGIST, UBS WEALTH MANAGEMENT: In essence, the Fed was drawing a line in the sand and saying, we're going to make sure that this liquidity crisis does not continue to cascade and they took very aggressive policy measures.
PRATT: Calm seemed to be restored in April and May as investors grew more upbeat about the outlook for the U.S. economy. But that optimism was short-lived due to surging oil prices which fueled worries about inflation. June was the worst month for U.S. stocks since the great depression. Investors seemed to realize the credit crisis was far from over and that high oil prices may be the new reality.
RYAN: Energy is continuing to move higher even as the economy was slowing. We saw the price of oil and other energy prices just kind of continue to defy most economists' forecasts.
PRATT: As a result of June's slide, the Dow at the mid-year mark was down nearly 20 percent from its 2007 highs. A decline of 20 percent is considered the start of a bear market, an unhappy milestone for investors. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
