Front Range Financial Consulting

As you bid goodbye to the 2007 market year, you may have felt a bit like a reluctant rollercoaster rider who staggers onto the unloading platform unsure of just how many corkscrews and loops were encountered along the way, because the thrill wasn’t in the ride. The thrill was in survival.

No question, 2007 was not an easy year for nervous investors. Its soaring highs – the Dow Jones Industrial Average (an unmanaged index of 30 widely held securities) closed at a record high of 14,164.53 points on October 9 – were offset by several heart-stopping descents – for example, dropping 546.02 points, 4.3% at the time, on February 27 before recovering to lose “only” 416.02 points on the day. Nevertheless, in 2007 the Dow rose 6.4%, the S&P 500 (an unmanaged index of 500 stocks) was up 3.5% and the NASDAQ composite (an unmanaged index of all common stocks listed on the NASDAQ National Stock Market) gained 9.8%. Volatile perhaps, but 2007 was a positive year.

Through it all, subprime mortgage and related credit crunch concerns roiled the markets on a regular basis. The Federal Reserve Open Market Committee, still eyeing inflation, acted three times to stir the economy, easing the fed funds rates by a full point to its current 4.25%. The Fed also pumped billions of dollars into the economy to assure liquidity, and was joined by other central banks around the world in doing so.

The price of oil rose dramatically during the year, approaching $100 a barrel for sweet light crude as the year ended (and trading at or above that mark in the first week of the new year). Observers wondered whether high gasoline prices and a depressed lending situation would finally curb consumer spending, a driving force behind the buoyant economy of the past few years.

What can be expected for 2008, now that we’ve survived the old year? Raymond James Chief Economist Scott Brown sees moderate times ahead and fairly slow growth gradually improving in the second half, providing that housing sector problems bottom out, that energy prices don’t spiral higher, and that leaner corporate profits don’t cramp the outlook for business investment. He and others cite the demonstrated resilience of the U.S. economy, however, and suggest that despite the obvious land mines lying in wait in some economic sectors, the longer-term prospects remain positive.