A look ahead to 2008: Will the financials turn around?

12/29/07 6:02 pm CT Saturday

By Dave Harris

We’ve seen some action on Wall Street that doesn't have much long term reasoning to it as 2007 comes to an end. Money managers, for example, were doing some window dressing and individual investors bought and sold for tax reasons. We had geo-political issues that dampened the mood as former Pakistan Prime Minister Benazir Bhutto was assassinated. Because it was a light trading week, the housing data had a greater impact on stocks with new home sales in the states falling a bigger than expected 9 percent. The street should not have been that surprised. Still, this raised further concerns about a possible recession. Up for debate may be if we are actually in a recession right now. Unemployment rose slightly above views to 349,000 new applicants while consumer confidence improved in December. We learned November durable goods rose and I believe that tells you business spending, although slower, continues to chug along. And the Chicago PMI (purchasing manager’s index) at 56.6 looked really good and above expectations. Some nice economic strength was shown there. The ISM index is due Wednesday next week. The big jobs report on Friday will give the market a little direction going into the New Year. Overall, I don't think we are in a recession. The economy just remains in slow growth mode.

The main indexes are achieving nice gains for the year so far. The Dow Jones industrials are well over 7 percent higher and the S&P 500 is up nearly 4 and a half percent. But the true champ is the tech-heavy NASDAQ, which is up over 10 percent.

Earnings season is coming up in January. Alcoa (AA) kicks off the unofficial start to it when the company reports quarterly results January 8^th. Before you know it, you'll be hearing from the likes of Genetech (DNA), Intel (INTC), Wells-Fargo (WFC), General Electric (GE) and Citigroup (C).

Speaking of Citigroup and the entire financial group for that matter, I believe the New Year will be a turnaround for the sector. By the later part of 2008, the market will look past the credit concerns and subprime issues. There's recent speculation that Citigroup will sell off many branches and cut its dividend by 40 percent. I think that's already priced into the stock, which closed down .27 Friday at 29.29. I don't think the stock is going much lower at this point and would consider picking up some shares at this level. Also in store for upside momentum in 2008 is Wells-Fargo (WFC), JP Morgan (JMP), and Bank Of America (BAC).

Despite a holiday shortened trading week ahead, it will be loaded with economic data which can move stocks in one direction or another. Tuesday the market is closed for New Years. Wednesday, the ISM manufacturing index is due from the Commerce Department. Construction spending is also set for release. Thursday, Auto sales and weekly jobless claims are on tap. Friday, it's the big jobs report for December. Wall Street is looking for a slight gain of roughly 70,000 new jobs created in December.

Have yourself a profitable 2008!