http://blog.mutualdecision.com/articles/2007/11/19/stall-speed en-us 40 Insight from the minds behind MUTUALdecision <div>The stock market took the long way around last week, with a 300 point up and a 200 point down day, to end basically flat.&nbsp;The Dow and S&amp;P were slightly up; some broader averages such as the Russell were slightly down. Volatility is exhausting.&nbsp;&nbsp; </div> <div>&nbsp;</div> <div>Financials had another rough week and the Transportation Index was down, at least in part, due to FedEx&rsquo;s tepid forecast.&nbsp;The financials continued to take a pounding, reaching lows not seen since August.&nbsp;The Transportation Index is often thought of as a bellwether for the economy.&nbsp;Fewer goods shipped implies an economic slowdown. &nbsp;The index&rsquo;s performance was consistent with another warning from retailers of a weak Christmas selling season.&nbsp;The high price of oil is taking its toll. &nbsp;Airline ticket prices are rising as are gasoline prices and worries about the price of winter heating bills is setting in.&nbsp;One pundit put the chance of recession at 40%.</div> <div>&nbsp;</div> <div>There was some good economic news.&nbsp;The core CPI, ex-food and energy, was up 2.4%.&nbsp;Including food and energy, the CPI was up 3.6%, not great but not bad considering the increase in oil prices.&nbsp;The Fed came out with a forecast of slow growth into 2008, also not great but projecting continued economic expansion nonetheless. </div> <div>&nbsp;</div> <div>The key economic report this week will be new housing permits and starts.&nbsp;They&rsquo;re projected to be down but the question is, as it always is, whether they&rsquo;ll come in above or below expectations.</div> <div>&nbsp;</div> <div>Where does all this leave us?&nbsp;The economy is operating at just above stall speed and housing or energy could drag it into a recession but, thus far, it is continuing to move forward despite the significant headwinds.&nbsp;Recessions are notoriously hard to predict and the stock market appears to have discounted a 50% probability of one occurring.&nbsp;Bond yields, particularly US Treasuries, remain unappealingly low.&nbsp;Thus, the stock market remains the place to be, although a cautious investment approach is in order.</div> <div>&nbsp;</div> <div>The stock market has drifted down to near its lows for 2007 as it tries to sort out the economic picture.&nbsp;This is an excellent base for an upward move, assuming the more likely scenario of continued economic growth.&nbsp;The market needs a catalyst and it will be the financials.&nbsp;Once the third quarter write-offs are out of the way and the banks provide some comfort that the financial crisis is behind them, even with continuing weakness in the mortgage market, the financial stocks will stabilize and the stock market will move higher.&nbsp;Watch the financials.</div> Mon, 19 Nov 2007 13:15:00 -0600 urn:uuid:9d0765c3-1bc4-4069-90a2-b1aad217225c Bill Byrnes http://blog.mutualdecision.com/articles/2007/11/19/stall-speed Market Mutual fund blog Mutual Funds Market Economy Economic Outlook