Market Commentary Fourth Quarter 2007
Winter Weather Advisory Effect
While the fourth quarter of 2007 was a weak period for US stocks, healthy gains throughout the first half of the year and a short year-end rally helped Oak portfolios achieve double digit gains by the close of 2007. During the quarter the S&P 500 fell 3.33%.
Concerns over the sub-prime mortgage contagion and additional billions in write-offs from financial firms lingered over the markets in the fourth quarter. Layoffs on Wall Street, with more likely to come, also left market participants in a dour mood. Fortunately, growth investors fared better than value investors. The growth style benefited as investors sought out companies with higher earnings prospects, adjusting for the possibility that the economic environment slows further. But the economic data, comments from the Federal Reserve, and sub-prime fall-out were ominous gray clouds during the usually strong seasonal period.
The three top performing sectors for the quarter were Utilities, Energy and Staples. Energy stocks benefited from crude oil’s flirting with $100 a barrel, while the other two groups are considered ‘defensive’. Not too surprising, Financials were the worst performing group, with Consumer Discretionary stocks also suffering. The housing slowdown and its effect on the consumer remain underlying arguments for bearish outlooks on Wall Street. Discourse on whether the economy is in a recession, if we will avoid one, or if we will only see revised economic data have become more common. The Federal Reserve has become more conciliatory with regards to lower interest-rates and will continue to act as an important financial meteorologist.
Heading into 2008, the economy may inspire grim headlines as presidential candidates jockey for political capital, but the underlying economic activity is healthy and we remain optimistic on the investment environment for growth stocks. Unemployment remains low (albeit higher than year ago levels), inflation is rather tame considering high energy costs, and corporate profits are healthy. And while reduced liquidity in the credit markets will undoubtedly prompt economists to fret about the monetary conditions, further Fed easing is likely.
Thank you for investing with Oak Associates in 2007. We look forward to fair weather in 2008.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice.