Stock Market: Excitement Aplenty as Volatility Returns

Stock Market News

June 2007

Stock Market: Excitement Aplenty as Volatility Returns

June marks the end of the second quarter—a time when investors often reassess and rebalance their portfolios. With so much to ponder, what should a savvy investor be considering at this juncture? As always, the pundits offer a variety of opinions, and we’ve captured some of their key considerations below. Bear in mind, the best source of investment advice is your own professional investment advisor. The following observations are designed to provide food for thought.

As May ended, investors had good news... and bad. Takeover news helped raise stock prices and stronger-than-anticipated findings on consumer confidence from the Conference Board added to the mood of optimism. However, there’s rarely a period of rejoicing on Wall Street that comes without some hints of possible trouble ahead. This one is no exception. Once again, a major bugaboo was China—more specifically, the concern that the Chinese markets were overheating. Here’s an overview:

We are back on a rollercoaster.It has been about four years since we’ve seen the type of volatility that has returned to the markets since late February. During those previous years of relative calm, we investors grew accustomed to a fairly docile market—with no sharp movements up or down. Well…it appears those days are behind us. We saw a sharp decline at the end of February/early March that drove the Standard & Poor’s 500 (S&P) down by 5.2 percent, followed by an 8 percent rebound that took the S&P to new highs. At times like these investors can become unsettled, but bear in mind that historically, investors who steel themselves for the inevitable ups and downs usually are rewarded in the long run. Despite the anticipated bumpy road ahead, the Dow’s recent run-up has made some stocks very pricey. Undervalued stocks do exist, especially in the technology sector. Your stomach for risk, your long-term financial goals, and your investment advisor’s suggestions are all key to sound decision-making as we reach the half-way mark of 2007.

Volatility is fueled by global news as well as unexpected news on the
home front.Whether it’s news that China is taking steps to cool its red-hot stock market or the release of data from a consumer spending survey, new information –good and bad—has the power to send the market into a corrective mode. Investment experts are keeping a close eye on the Asian market—especially China, the powerhouse of economic growth. China’s benchmark stock index has risen some 62 percent this year –following its 130 percent rise in 2006. The U.S. markets are proving to be more vulnerable than ever to volatility overseas.

Competing economic forces abound and so do investment recommendations.Opposing economic forces (more than we have seen for several years) are affecting the financial markets in the U.S. There are concerns about diminishing corporate profits in the U.S. and declines in the housing market, as well as worries about the slow-down in economic growth. In the global arena, we are witnessing huge amounts of money (trillions of dollars) in the world’s financial markets supporting stock prices. Not surprisingly, all these factors mean there are many opinions on what news is most relevant.

Whatever’s ahead, we can bet on one thing—volatility is in the forecast.

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