Markets in a Nutshell
June 16, 2008 Issue
A mixed week for stock market returns. The Dow gained 0.8%, the Nasdaq dropped 0.8% and the Value Line (the average investors index) declined 1.2%. For the year the Dow is down 7.2%, the Nasdaq 7.5% and the Value Line 8.3%.
While we are seeing $4 a gallon gas for the first time here in the U.S., who pays the most in the world? According to the Investors Business Daily (6/12), those in the U.K. are paying $8.38 a gallon, Germany $7.86. Japan was 3rd at $5.06. Who pays the least? Venezuelans pay $0.12 a gallon (yes, 12 cents!), Iranians are at $0.40 and Saudi Arabia $0.45. Not surprisingly, Germany, U.K., and Japan pay among the highest gas taxes per gallon ($5.16, $5.02, $2.29 respectively). The U.S. was low on the tax list at $0.40 tax per gallon. As oil prices eventually settle back, we will see gas prices drop here.
It is no secret that financial stocks have been battered over the past year. The Wall Street Journal reports the Dow Jones Wilshire U.S. financial stock index has lost 37% over the past 12 months and is back to levels of August 2003. While it is always a challenge to pick the bottom for any sector or stock, it would seem that for many stocks (such as Citigroup) a good long term buying opportunity has presented itself (which is reason we have bought this sector for clients). Morningstar has 10 year annual average returns for financial sector mutual funds at 3.9%. At some point those numbers will rise to more “normal” levels (normal being more like 10% a year).
Think the U.S. is still a world leader? Yea, me too. Here is one reason why. Business Week's annual list of the world's most innovative companies shows 16 U.S. companies out of the top 23 in the world (companies such as Microsoft, Google, Wal-Mart, GE, Proctor & Gamble. Non U.S. companies included Toyota, Nokia, BMW). That is good news for our future economic growth as innovation usually leads to greater productivity which a strong driver of growth.
The Labor Dept reported U.S. Consumer prices (CPI inflation index) rose 4.2% (2.3% without food and energy) over the past year. This is a concern and a reason why the Federal Reserve will probably raise interest rates by year end. But the U.S. is not the only place inflation is a concern. The Emerging Economies which have economically grown at double digit rates this decade are starting to see the downside effects of high GDP growth. Russia's inflation is now close to 15%, China 8%, India 8%, Vietnam 25%. What this means is likely slowing of worldwide economies as governments try to keep inflation from getting out of control.