2008: A Transition Year for Stocks

It’s still a very difficult market out there for equity investors. The broader market’s been rallying just a little, but with earnings season upon us, all bets will be off.

From the Street’s perspective, the market isn’t expecting a lot from corporations, both large and small. Just about everyone expects the first quarter to be slow. Investors are clearly looking to see what corporations will be saying about the future, as the market has already discounted weaker first quarter earnings.

It takes courage to be a buyer in this market. The current environment is definitely more attractive for long-term investors with lots of cash waiting to be put to work. Still, even if you take on new positions right now, they very well might not do anything at all for the rest of this year.

There’s no doubt in my mind that 2008 is a transition year for stocks. The tides have turned and only the test of time will get us out of it. I say this because I don’t think we can expect much more in the way of monetary stimulus. We might get a few more interest-rate reductions from the Fed, but the central bank is beginning to run out of room to maneuver.

On the fiscal front, the only thing left for the government to do is to cut spending, but this is very unlikely considering that it’s election time.

Really, the last five years on the stock market have been very good, especially considering the size of the technology meltdownafter 2000. Just look at a chart of the S&P 500 index. Even though the current stock market correction is due to a number of factors, including the credit crunch precipitated by the subprime mortgage market, general weakness in real estate prices and a slowing of the general economy, it’s not unreasonable to have a down year in stock prices when the last five have been so solid.