Is the bottom in yet? There is a saying in our industry, “so goes the first week, so goes the first month, so goes the year.” January ended on a sour note and February is shaping up to be another negative month. The March Dow Jones Industrial Average futures contract put in a new low at 7231 during the week of February 16, 2009. The March S&P 500 futures contract has not yet taken out the November 2008 low at 737. Those lows still may be tested and perhaps even violated. These are definitely extraordinary and difficult times for the ordinary investor but I believe there is light at the end of the tunnel.
This may sound overly optimistic given recent market behavior, but I think the December 2009 S&P 500 futures contract will be at 1000 or higher by expiration. There has been too much uncertainty in the market as to how the new administration would handle this recession. But in the next few weeks as it becomes clearer, I think the market will become more stable and eventually begin to grind higher. You see, I believe the market is a leading indicator of the economy down the road. We have heard a lot of debate over whether or not this nearly $800-billion stimulus bill is real stimulus, or Democratic “pet project” spending. Regardless, I think this stimulus should put an end to the downward trend of the U.S. economy. While only 25 percent of the stimulus will be spent in 2009, we can look forward (like the market does) to a more robust economy in 2010. Perhaps we’ll see a GDP of 2.0 percent to 3.0 percent.
Recent economic data such as retail sales, the producer price index and leading economic indicators have shown better-than-expected numbers, and other bad economic reports out recently could have been even worse. While I do believe that the stock market is bottoming out here, I don’t expect to see employment numbers improve much until the third or fourth quarter, as employment is a lagging indicator. I think housing numbers will show improvement sooner, as the Treasury Secretary’s plan should stabilize the banking system begin and loosen credit. We already see what’s being done to keep people who are at risk in their homes. President Obama told the Treasury Department to begin its payroll tax credit. Within the next few weeks, 95 percent of all working Americans will see less taxes being taken from their checks. That’s more money in their pockets. This stimulus package should at least put the bottom in, and start to create more jobs down the road.
No doubt this is a global recession, and everyone is feeling the pain. The U.S. was the first to enter a recession, and we should be the first out. China has also slowed down and needed to create its own stimulus package. We are starting to see an increase in orders for commodities out of China. The point is that the world’s biggest economies are taking extraordinary steps to fix these problems. We’re going to be alright!
The appetite for risk still remains tame, and most average investors are willing to wait for the market to confirm that a bottom is in fact in before buying stocks aggressively. I, however, feel confident that by the end of 2009 the S&P futures will be 250-300 points higher than where they are at today.
June E-mini S&P 850 calls at 30 points (about $1,500 not including commissions.) These options expire on June 19, 2009.
September E-mini S&P 900 calls at 25 points (about $1,250 not including commissions.) These options expire on September 18, 2009.
December E-mini S&P 950 calls at 20 points (about $1,000 not including commissions.) These options expire on December 18, 2009.
Please feel free to contact me with any questions you have in this or other markets, and to develop a customized strategy for your particular situation.
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