Forbes Market Briefing
Happy New Year ... We Hope
Steve Schaefer, 12.31.07, 5:05 PM ET
With the calendar set to turn the page on 2007, Wall Street closes the book on a tumultuous year.
The year started off on the right foot: private equity was still booming, financial firms were raking in cash from advisory fees and other operations, and investors were expecting a record-setting performance on the Street. Then the subprime mortgage meltdown hit and the stock market, and the U.S. economy, did an about-face. What looked like a record-setting year early on turned sour, limping to the finish, and the dreaded "R" word was on economists' tongues by the time fall turned to winter.
Three whacks at interest rates by the Federal Reserve was not enough to stem the tide of the credit crunch, as the collapse of the mortgage and housing markets pressured investors and consumers alike. To make matters worse, most recent inflation indicators have come in higher than expected, suggesting the Fed may have put itself between a rock and a hard place, having run out of room to take interest rates lower, and pushed the country to the brink of recession. (See: "Fed Trims Rates")
Despite the pressures on the economy and the bloodletting in the financial sector over the past two quarters, many remain optimistic. The Dow Jones industrial average still managed to post a 6.4% gain for the year, despite a 4.6% drop in the fourth quarter, and the tech-fueled Nasdaq finished with a strong 7.9% increase.
One of the Nasdaq's most high-profile success stories in 2007 was Apple (nasdaq: AAPL - news - people ). The consumer tech company rode the success of the iPhone and incredible demand for all its products to a 133% gain for the year, and shares finished the year just below the $200 threshold, at $198.08.
On the Dow, Citigroup (nyse: C - news - people ) may have been the biggest story of the year, as the financial giant was brought to its knees by massive writedowns related to subprime mortgages, resulting in the exit of former CEO Chuck Prince. Shares of the bank plunged 47% in 2007. (See: "Another Wall Street Chief Falls")
In the mortgage sector, the largest U.S. home lender, Countrywide Financial (nyse: CFC - news - people ), was hammered by the subprime meltdown, losing nearly 80% of its market value.
Meanwhile, big caps outpaced small caps, as the Standard & Poor's 500 posted a 3.5% gain to beat out the Russell 2000 index, which fell 2.8% for the year.
Crude oil is poised to finish off 2007 with its greatest yearly gain in nearly a decade. Down two cents Monday to settle at $95.98 a barrel, crude still posted its biggest jump since 1999 in what has been an extremely volatile year for energy prices.
Exxon Mobil (nyse: XOM - news - people ) posted a 22% gain for the year, following oil and gasoline prices on their wild ride higher. With crude near $96 a barrel and gasoline over $3 a gallon, oil companies are likely to continue reaping the benefits in 2008. (See: "Sneak Peak 2008: Energy")
After 2007 came in with a roar and went out with a whimper, investors will be hoping for a rebound in 2008, while monitoring several trends.
Chief among those trends will be the continuing flow of foreign capital into pillars of the U.S. financial community. Citigroup, Bear Stearns (nyse: BSC - news - people ), Morgan Stanley (nyse: MS - news - people ) and Merrill Lynch (nyse: MER - news - people ), among many others, have all sold stakes to sovereign wealth funds in the Middle East or Asia. (See: "Merrill Still Shopping")
Look for some semblance of a bottom for the financial sector to emerge early in 2008, as the major Wall Street players utilize their newfound foreign capital to rebound from the ill effects of the subprime crisis.
Many analysts are predicting continued growth in the stock market for 2008 despite a prolonged housing slump and overall economic slowdown. The Fed bears watching as it attempts to boost liquidity in financial markets while limiting inflation, particularly if credit continues to be tight.
Happy New Year ... We Hope
Steve Schaefer, 12.31.07, 5:05 PM ET
With the calendar set to turn the page on 2007, Wall Street closes the book on a tumultuous year.
The year started off on the right foot: private equity was still booming, financial firms were raking in cash from advisory fees and other operations, and investors were expecting a record-setting performance on the Street. Then the subprime mortgage meltdown hit and the stock market, and the U.S. economy, did an about-face. What looked like a record-setting year early on turned sour, limping to the finish, and the dreaded "R" word was on economists' tongues by the time fall turned to winter.
Three whacks at interest rates by the Federal Reserve was not enough to stem the tide of the credit crunch, as the collapse of the mortgage and housing markets pressured investors and consumers alike. To make matters worse, most recent inflation indicators have come in higher than expected, suggesting the Fed may have put itself between a rock and a hard place, having run out of room to take interest rates lower, and pushed the country to the brink of recession. (See: "Fed Trims Rates")
Despite the pressures on the economy and the bloodletting in the financial sector over the past two quarters, many remain optimistic. The Dow Jones industrial average still managed to post a 6.4% gain for the year, despite a 4.6% drop in the fourth quarter, and the tech-fueled Nasdaq finished with a strong 7.9% increase.
One of the Nasdaq's most high-profile success stories in 2007 was Apple (nasdaq: AAPL - news - people ). The consumer tech company rode the success of the iPhone and incredible demand for all its products to a 133% gain for the year, and shares finished the year just below the $200 threshold, at $198.08.
On the Dow, Citigroup (nyse: C - news - people ) may have been the biggest story of the year, as the financial giant was brought to its knees by massive writedowns related to subprime mortgages, resulting in the exit of former CEO Chuck Prince. Shares of the bank plunged 47% in 2007. (See: "Another Wall Street Chief Falls")
In the mortgage sector, the largest U.S. home lender, Countrywide Financial (nyse: CFC - news - people ), was hammered by the subprime meltdown, losing nearly 80% of its market value.
Meanwhile, big caps outpaced small caps, as the Standard & Poor's 500 posted a 3.5% gain to beat out the Russell 2000 index, which fell 2.8% for the year.
Crude oil is poised to finish off 2007 with its greatest yearly gain in nearly a decade. Down two cents Monday to settle at $95.98 a barrel, crude still posted its biggest jump since 1999 in what has been an extremely volatile year for energy prices.
Exxon Mobil (nyse: XOM - news - people ) posted a 22% gain for the year, following oil and gasoline prices on their wild ride higher. With crude near $96 a barrel and gasoline over $3 a gallon, oil companies are likely to continue reaping the benefits in 2008. (See: "Sneak Peak 2008: Energy")
After 2007 came in with a roar and went out with a whimper, investors will be hoping for a rebound in 2008, while monitoring several trends.
Chief among those trends will be the continuing flow of foreign capital into pillars of the U.S. financial community. Citigroup, Bear Stearns (nyse: BSC - news - people ), Morgan Stanley (nyse: MS - news - people ) and Merrill Lynch (nyse: MER - news - people ), among many others, have all sold stakes to sovereign wealth funds in the Middle East or Asia. (See: "Merrill Still Shopping")
Look for some semblance of a bottom for the financial sector to emerge early in 2008, as the major Wall Street players utilize their newfound foreign capital to rebound from the ill effects of the subprime crisis.
Many analysts are predicting continued growth in the stock market for 2008 despite a prolonged housing slump and overall economic slowdown. The Fed bears watching as it attempts to boost liquidity in financial markets while limiting inflation, particularly if credit continues to be tight.
