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2008 Second Quarter Results Indicate Tough Times Not Over

1 July 2008 - Markets - Editor

With the second half of 2008 looming ahead, the general feeling among stock market investors and financial analysts is anything but optimistic. Following a nerve-racking first quarter, the second quarter of 2008 started off with many investors believing that the worst was over and that earnings growth and stocks would pick up as the year progressed. These high hopes were dealt a death blow as the effects of the credit crisis lingered, oil prices soared, inflation worries persisted and consumers continued to curb their spending.

The second quarter trading results did not come as a complete surprise to investors, as they acknowledge that the decline was very evident by mid-May when the Dow Jones Industrial Average began its downward spiral, ending the second quarter with an overall loss of 912.88 points. This marked the third quarterly decline in a row, and the worst second quarter result since 2002. Despite a small gain on Monday, the DJIA was down by more than 14%, and it appears likely that the problems weighing on stocks during the first half of the year will continue to the end of 2008.

Looking to the remainder of the year, many analysts are of the opinion that a rebound in home prices will serve as an indication that the ongoing credit crisis is over, while others believe that with high housing inventories, a sustained rise in prices will not take place in the near future. Rising oil prices are a very real threat to economic growth as well as being a contributing factor in inflation. However, oil remains a popular target for speculators, which could also serve to drive prices higher. Consumer spending in general has been inhibited by rising energy costs, which is cutting into household disposable income.

Investors and analysts are well aware that problems are not just confined to the U.S. History reveals that global stock markets very often move in sync and the current situation, where a host of issues are hitting different markets simultaneously, bears this out. Exceptions to the current global situation are some Latin American markets, boosted by Brazil’s commodity economy, and Japan with its subdued inflation and Nikkei Stock Average up by 7.6% in the second quarter.

Although the downward trend in the market is an ongoing major concern, with the majority of traders playing it safe while they look for signs indicating an end to both the stock market and broader economy’s woes, analysts seem to agree that the situation has not yet reached true panic level. The remainder of 2008 is sure to present some severe challenges in the world’s stock markets, but investors will no doubt do all they can to weather the storm.

 


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