This is The Wall Street Digest Hotline Update for Tuesday, August 28, 2007, at 6:00 p.m. EST.
Falling consumer confidence and declining home prices pushed stock prices lower today. At the close, the Dow plunged 280 points, closing at 13,041, while the Nasdaq sank almost 61 points, closing at 2,500. Oil closed down $0.24 to $71.73 per barrel, and gold closed down $2.70 at 673.50 an ounce.
Housing prices fell in the second quarter at the steepest rate in 20 years. Inventories of homes for sale rose to a 9.4 months supply. Falling consumer confidence also rattled the markets today. The Federal Reserve Open Market Committee (FOMC) meets on September 18. However, on September 17, the Mortgage Bankers Association will release its National Delinquency Survey for the second quarter. It is bound to be ugly and should convince the Fed to cut the Fed funds rate by 50-basis points.
Fears of a recession also pushed stock prices lower today. The Fed could cut rates before September 18 to settle the markets. The global economic boom is solid. U.S. corporate profits for the second quarter are far better than expected. Stock prices are cheap, with the U.S. stock market undervalued by 35 percent. Every chart I look at is shouting: Major Market Bottom. Stay fully invested! Do not purchase the banking or financial stocks.
Don't read too much into today's sell-off. Voulme was very light, which indicates the bullish traders are on vacation and won't return until after Labor Day.
The dollar has already lost 35 percent of its 2002 purchasing power. More rate cuts are coming and they will further weaken the dollar. The greatest economic boom and bull market is still underway. I expect new highs in most stock market indexes by year-end. Global/international investments will enhance your investment returns as the dollar declines against other currencies.
Real estate is an illiquid, high-risk investment! Do not look for real estate bargains. Renting a home or condo is cheaper than owning. When that scenario reverses, it will then be safe to buy a home or condo. Real estate analysts do not expect the housing downturn to bottom until 2009 in Florida and California.
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The next Hotline Update will be on Friday, August 31, 2007, at 6:00 p.m. EST.