The Wall Street Journal reports that the stock market finished the second quarter just above Bear market territory. Does that mean everything's great or that things are going to get worse from here? I think the worst is yet to come and that investors should hold onto their stocks unless they and/or the companies they've bought are going bankrupt. And they might look to buy stocks in the coal and fertilizer industries.
The Journal reports that the Dow Jones Industrial Average (DJIA) began its march downward, ending the quarter (including Monday's slim 3.50-point gain) with an overall loss of 912.88 points, or 7.4%, at 11350.01 -- and perilously slightly less than the 20% decline from a recent high that is considered the start of a bear market. It was the third straight quarterly decline and the worst second quarter since 2002.
I think the 20% decline that designates a Bear market is pretty arbitrary. People know that the market has been a disaster. And if earnings matter, it's likely to get worse. The Journal notes that analysts expect earnings at S&P 500 companies to be down 11% for the second period, led by a 60% plunge in financial-sector earnings. Estimates fell sharply as the quarter progressed. On April 1, analysts were expecting a 2% drop in S&P earnings and a 31% decline in the financial sector.
I think investors should hold onto their stock because selling creates tax issues and it also raises the question of when to get back in. But if you have cash, there are some investment opportunities. As I posted, my newsletter is up 29% for the first half of 2008. That's due to profit opportunities in raw materials such as coal and potash.
But I think the Bear market will be growling loudly for at least another year. So if you need your money before then, you might as well bite the bullet.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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Reader Comments (Page 1 of 1)
7-01-2008 @ 11:19AM
Speculator said...
I think the bear market will continue for some time . I don't think the SP 500 will hit 1400 again this year. In this Weekends Barron's Peter Schiff said "The US is in trouble"
www.theinvestingspeculator.com
7-01-2008 @ 10:39PM
Ron n said...
The current stock market slide represents the best opportunity to buy the stocks that have great assets and low p/e since 2001. With inflation running at decade highs the current asset of major corportation are under valued based on the fact to replace them would in some cases cost double or more to replace today. Once the public realizes current inventory of most corporations is owned at 1/3 it's replacement cost the buying frenzy will be on, buy now or pay much more later.
The price of stocks based on most major corporations assets which are under valued should be 35% higher and well could be in just months as companies realize how under valued their inventory and assets really are compared to replacement costs. Inflation makes materials and equipment more expensive. If you are going to buy something, anything when would the best time to buy it, now or later???????