New Doom and Gloom in a New Year?

12/29/2008 11:51 am EST

Focus: MARKETS

Jim Farrish

Founder and CIO, Jim's Notes

Jim Farrish, editor of SectorExchange.com, says negative sentiment has returned with a vengeance to the market, but the outlook isn't all gloomy.

Why the renewed doom and gloom over both the US and global markets?

We could all speculate on reasons, but it is more about the reality: The more analysts and investors look at the facts, the harder it becomes to find something positive to spark a renewed rally. That reality is sinking in across the board, and this past week, showed a lack of confidence. Despite the shortened trading week because of Christmas, the sentiment shifted to the "Grinch Who Stole Hope."

This week's economic data may put that reality front and center for many. Third-quarter gross domestic product (GDP) growth was negative, and the fourth quarter will almost certainly be worse. Home prices fell by double digits again, and retail sales were tanking despite massive after-Christmas discounts, which were likely to leave retailers profitless. Jobless claims hit 586,000, a new 26-year high, in the week ending December 20th. So, the data all lean towards the negative, weighing on the psyche of investors.

However, it would take little effort to make a silk purse out of this sow's ear. Retail prices were down for the consumer; gasoline is below $1.70 a gallon; inflation is under control; the trade deficit is not getting worse; and new mortgage applications soared more than 40% again last week. Households are paying down debt, and as a result, savings are on the rise.

In my view, that is all positive. Yes, there is plenty to be negative about and there are things wrong everywhere. But there also are signs of hope, and if they can be built on, investors will come back to the markets. All is not lost, just temporarily misplaced.

We are heading into 2009 knowing things are not going to be great. That means as investors, we have to be selective in how we invest our money. My focus is to find the sectors that could benefit from the current environment, along with those that will change on the horizon. I will continue to do that in the new year.

Jim Farrish, founder and editor of Melbourne, Florida-based SectorExchange.com, writes regularly about sectors and speaks widely about investing and money management.

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