Client & Advisor Update - January 14, 2008
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Corrected: Client and Advisor Update
In this week’s Client and Advisor Update, we review what happened in the markets, look at what a recession is, and try to see if we are in one.
SYNOPSIS: At the close on Thursday, both the Dow Jones and the S&P had managed to eke out a small weekly gain. Then Friday’s news of American Express's profit warning and Merrill Lynch's potential $15 billion write-down revived fears that the economy is heading into recession. The negative reaction was swift and forceful.
Two weeks into the New Year, the Dow Jones is down about 5 percent, the S&P has fallen 4.6 percent, and the NASDAQ is deep in a hole, losing 8 percent. Oil prices closed Friday at $92.90 per barrel and the yield on ten-year Treasury notes fell again last week to 3.78 percent.
Last week, a client wanted to know what a recession is and is it happening now. Well, the conventional definition of a recession is a period of general economic decline, specifically, a decline in Gross Domestic Product (GDP) for two or more consecutive quarters. However, the National Bureau of Economic Research’s Business Cycle Dating Committee is responsible for officially declaring when a recession or expansion has started or ended.
On Thursday, Federal Reserve Chairman Ben Bernanke said that the central bank does not think the economy is in a recession and that it is willing to continue cutting rates to keep growth from slowing too rapidly. However, according to Merrill Lynch’s North American economist, Davis Rosenberg, the U.S. economy already could be in recession.