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Economic Recovery and a Bear Market??

The stock market is not even trying to digest some of the good economic news. The economic recovery in the manufacturing and non-manufacturing industry is continuing to gain momentum. Jobless claims fell last week by 32,000 to 383,000, the lowest level in 13 months; initial jobless claims are a leading indicator while the unemployment report is lagging. The decline in claims is very encouraging but several more weeks of declining data will be needed before we can say the labor market is improving. Unfortunately investor sentiment is currently poor, the investor’s nerves are frayed and increasing signs of tension in the Middle East or between India-Pakistan seems to send the bulls into hiding and bring out the bears.

The market tome continues to suggest that investors remain very, very sensitive to the day-to-day tone of news coming either from corporate America or from the geo-political front. We suspect investor tensions reflect the lack of progress on the war- terrorism compounded by the repeated warnings from the Administration officials at the highest level that something nasty will happen on America soil. There is the possibility of a major military offensive action. In the meantime, the creation of a Cabinet level agency, the Department of Homeland Security, may momentarily quell some anxiety. I suspect investors want to go to bed feeling secure in their homes before getting excited about investing. Near-term rallies could be momentary; such as the one we experienced last Tuesday. The closest comparable psychological market periods were the summer of 1990 after Iraq invaded Kuwait and in 1974 just ahead and immediately after Nixon resigned the Presidency. At these points in time, political problems overwhelmed economic realities, although both were recession periods. Most of the economic news today suggests that the current recession is over for most industries with the  notable exception of technology and telecommunications.

There are many investment challenges facing us today. It is important to review your investment decisions and make adjustments where necessary. The market action of the last three years has dramatically reinforced the need for broad diversification amongst asset classes and investment styles. This style of investing can greatly reduce the volatility of your investment results. It is important to develop a disciplined and systematic approach to investing. 

Retirement planning, education planning or saving money to purchasing a home all have different investment objectives. It is important to create a well-designed plan specific to your needs; it is equally important to revisit that plan and be sure your targets and expectations are being met. Take a long-term view and give your investments a chance to pay off. Investing your money now will help you avoid waking up and realizing that you haven’t saved enough money to help your children with college or allow you to retire



Nancy Hadley is Financial Consultant with D.A. Davidson in Sandpoint.

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Nancy Hadley

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stock market, retirement, investment

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