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New Year's Market Q&A

Posted: Jan 08, 2008 10:03 AM by Glenn Curtis

Tickers in this Article: C, APPL, MAR

I had already received my fair share of gifts over the holidays, and I thought my receiving days were over for awhile until I came back from my vacation to find my email inbox stuffed with investment related questions. The gifts keep on coming! It's that time of the month again - time to delve back into the mailbag and answer some of the questions from online readers about the market's current state of affairs.

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Why did the U.S. markets drop when Benazir Bhutto was assassinated?
Following Bhutto's assassination on December 27, the Dow plunged 192.08 points to close at 13,359.61. Until her death, few realized the influence that Bhutto had in the United States. Bhutto was viewed by many in North America as a moderate leader who would also take a hard stand against terrorist activity and extremism.

With her assassination, there is a question as to which direction Pakistan, a nation with nuclear weapons, will head. Will terrorist influence grow as an air complacency takes over, or will there be a new crackdown? This is important for our markets, because instability in that region of the world could impact oil supplies and production as well as other commerce. This is why the death of a foreign political figure can have such a huge impact here at home. (For added insight, check out Terrorism's Effects On Wall Street.)

Apple Computer (Nasdaq: AAPL) has traded above $200 a share. Are you still bearish on the company?
It's hard to be a bear on a company that has shown so much momentum in share price over the past year. After all, Apple started 2007 trading under $100, and it's currently in the $175 range. Still, I continue to believe that its valuation - it trades at about 35-times the current fiscal 2008 estimate of $5.06 - is a bit excessive given that it is expected to grow its earnings at only about a 25% pace from fiscal 2008 to fiscal 2009. Sooner or later, I believe that someone is going to be left holding the bag, and I refuse to be the one. (To learn more, see Move Over P/E, Make Way For The PEG.)

Shouldn't all the bad news from the subprime meltdown be factored into stock prices by now?
That's a great question. My take is that a large amount of this news has probably been factored into stocks. Companies such as Citigroup (NYSE:C), Merrill Lynch (NYSE:MER), a variety of homebuilders and countless others have seen their stock prices fall drastically over the past year.

The big variable remains consumer spending when determining when a turnaround will happen. The outlook for consumer spending is so shaky right now that it's unclear to me whether this crisis will deepen or abate. Going forward, keep your eyes on the employment numbers and consumer spending. Once things start to get better for the average consumer, I think it will be much safer to assume all of the credit crunch's bad news has been factored in. (For added insight, check out Surveying The Employment Report and our feature on the Subprime Mortgage Meltdown.)

The Bottom Line
I love Q&A sessions. So, feel free to send in your questions, and I will try to answer them either one-on-one or in this forum in a future month.

Happy New Year everybody!

By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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