Give Back Time

After barely breaching the 14,000 point, within six trading sessions the Dow Jones Industrial Average managed to bring traders to their knees and have the press discussing the carnage on Wall Street. For the week, the DJIA managed to give back 734.94 points and closed at 13,265.47, which is a 5.24% decline. Of course the DJIA was not alone in its pain, as the Standard and Poor's 500 surrendered 79.33 points to close at 1,473.17 and cough up 5.1% of its value, and the NASDAQ relinquished 5.5% or 150 points, to end the week at 2,562.24. All and all, not a very good week for the indices, as the bears surely trashed the recent party.

Earlier in the week, we spoke of the possibility of more selling, which would not necessarily be a bad thing. This market has not seen a 10% decline, which is considered a correction and generally thought to be a positive occurrence, since this bull run began. Of course no decline in the market comes without some pain for investors, but as the saying goes, "no pain, no gain". Should this be the beginning of a correction, the DJIA would have to fall to 12,600, the S&P 500 to 1,397 and the NASDAQ to 2,441 to register a 10% decline. If this were to occur, it would be painful, but only the S&P 500 would actually be down for the year, as the DJIA and NASDAQ would still be slightly above their January 2007 levels.

What makes this drop particularly intriguing is the fact that we are at a point in the economic cycle, where most economists are expecting about 2.5% GDP growth, which would indicate this is just a bump in the road. However, as we discussed here before, the average economic cycle since 1945 has lasted 67 months, which we have surpassed now in this cycle. With housing and the mortgage debacle weighing on economy, the possibility exists this current economic cycle could be closer to the average, and not like the last two economic cycles we've experienced. So, what do you do about the uncertainty? Swings in the prices of your investments are only paper gains or losses until you sell and lock in the gain or loss. My suggestion is to continue to diversify your holdings, and hope this cycle is another record!

John Kaighn

Jersey Benefits Advisors

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