Weekly Outlook: Stocks Slide, Commodities Soar as 2008 Begins

Last week, in the final trading week of 2007, a Thursday sell-off was followed by a fairly indifferent Friday.

This week, in the first trading week of 2008, the scenario was reversed, but the outcome -- another down week in the markets -- was the same.

Before getting too carried away with the bearishness of recent weeks -- a bearishness that has renewed the very same recession fears that had dissipated somewhat back in mid-December -- let's take a look at a longer-term view. The S&P 500 has not made a significant lower low on a weekly basis in three years. And while it has slipped below its 50-week moving average (and below its 200-day moving average -- a true warning sign, to be sure), we have seen the market make similarly bearish moves before: most recently in the fall of 2007 and before that during the summer of 2006. In both cases, the markets recovered to reach new highs.

Does that mean it will happen again in 2008? It is impossible to know for sure. But given the track record of economists' recession predictions, investors could be forgiven for fading the fear -- at least until the market proves that it has nowhere else to go but down.

The King of Things

Which commodity has been the most impressive performer of late? Crude oil? Gold? What about wheat?

In the same way that investors in the late 1990s came to believe they could throw a dart at a list of stocks and likely hit one that was going to be higher a year later, many are starting to believe that commodity investors might be able to pull off the same trick with what are colloquially called by commodity types, "things."

Crude oil began 2007 near $60 a barrel and ended the year challenging $100. Gold started off in the low $600s at the beginning of 2007 and finished 2007 just south of $850. And wheat rallied from 50 cents a bushel at the beginning of last year to more than double that amount by mid-December. Sugar prices were lower on the year. But just about everywhere else investors turned -- from soybeans to cotton -- the price of "stuff" was going up.

While a number of observers anticipated higher commodity prices years ago, the reigning king of things is likely Jim Rogers, the "investment biker" and former hedge fund trading partner with George Soros. Rogers, who is well known for his bullishness on China, also made a big bet on commodities as the 2000s began, saying to anyone who would listen that the 20th century featured three "secular bull markets" in commodity prices and that a new one would help usher in the 21st century. But for those who are arriving late to the commodity party, Rogers offers hope in the form of corrections -- which he believes will be "nasty" over the coming years, affording savvy investors the opportunity to climb in -- and duration. The secular bull markets in commodities of the 20th century lasted on average 15 years. That means if the current bull market in commodities is similar, then the rising price of "stuff" is barely half over.

Buddy, Can You Spare a Job?

How long ago was it that we were talking about a "worker's paradise" of rising wages and low unemployment?

What a difference a few months have made!

Some analysts are pinning their hopes on solid consumer spending data from the holidays to help move investors further from the ledge of recession/bear market despair. And while there were a few smiling faces on Bloomberg this morning talking about how employment was a lagging indicator or how a 5% unemployment rate is historically low or, my personal favorite, how we should be grateful that the jobs number was a "positive" one, the market reaction to the sharp drop in nonfarm payrolls in December was no-less sharp selling.

The fact that public sector job growth is largely what kept the jobs number "positive" was another groan-inducing aspect of the payrolls report. With job losses in manufacturing, construction, retail and in the financial sector, those trying to explain away the disappointing report found fewer directions in which to turn. Even the typically, upbeat ADP report revealed that many companies were shifting toward independent contractors rather than regular full-time employees due to fears of a slowing economy.

Stocks in the News

Stocks in the news this week include financials and tech, as usual, though there were some interestingly bullish stories in stocks like Monsanto, Boeing and Barrick Gold this week, as well.

The largest institutional money manager in the world, State Street (STT | Quote | Chart | News | PowerRating) announced that it would set aside $700 million to cover legal expenses surrounding the investments that were related to subprime mortgages.

Technology stocks were among the worst performers of the week, including Intel (INTC | Quote | Chart | News | PowerRating) which in addition to being downgraded by J.P. Morgan, added injury to insult by pulling out of a plan called "One Laptop Per Child" which provided computers to students in developing countries.

The king of American automakers is still General Motors. But now Toyota (TMC | Quote | Chart | News | PowerRating) is officially number two having passed Ford. Toyota sales were up 3% in 2007, based in part on strong sales of its Toyota Tundra pickup truck.

Rising commodity prices were a gift that kept giving for Monsanto (MON | Quote | Chart | News | PowerRating), which enjoyed nearly a tripling of profits in the company's first quarter.

Talbots (TLB | Quote | Chart | News | PowerRating) made news this week with the announcement that the high-end clothing retailer would discontinue selling both children's and men's clothing, in addition to cutting its workforce nationwide by 5%.

Barrick Gold (ABX | Quote | Chart | News | PowerRating) was one of a number of gold stocks that benefitted greatly from the surge in the gold price this week. Shares of Barrick Gold soared more than 17% to reach levels not seen since 1994.

Delivering more than 440 commercial airliners in 2007, Boeing (BA | Quote | Chart | News | PowerRating) had its best year since 2001.

What to Look for Next Week

Monday: Consumer Credit
Tuesday: Chain, Retail Store Sales / Home Sales
Wednesday: MBA Refinancing Index
Thursday: Initial Jobless Claims
Friday: Import Prices / Trade Balance

Best Performing Stocks (PR 8-10) of Last Five Days

Here are some of the best performing, high PowerRatings (for Investors) stocks of the past five days. This week, all of the listed stocks have PowerRatings of 8 or 9.

Medco Health Solutions (MHS@MHS | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 9
Becton Dickinson Company (BDX@BDX | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 8
Humana (HUM@HUM | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 8
EOG Resources (EOG@EOG | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 8
Teva Pharmaceuticals (TEVA@TEVA | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 8

Worst Performing Stocks (PR 1-3) of Last Five Days

Here are some of the worst performing, low PowerRatings (for Investors) stocks of the past five days. This week, all of the listed stocks have PowerRatings of 2.

Freddie Mac (FRE@FRE | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 2
Trident Microsystems (TRID@TRID | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 2
Fannie Mae (FNM@FNM | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 2
Usana Health Science (USNA@USNA | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 2
NutriSystem (NTRI@NTRI | Quote | Chart | News | PowerRating). PowerRatings (for Investors): 2

David Penn is Senior Editor at PowerRatings.net

PowerRating Charts are now live! Click here to launch them.