25 Surprises for 2007
9. Corporate profits for 2007 end up virtually flat year over year, but the pattern is inconsistent. After rising 8% in first-quarter 2007, corporate profits are down 5% in second-quarter 2007, up by 2% in third-quarter 2007 and back down by 4% in fourth-quarter 2007.
10. Equity-market volatility, like credit spreads, rises exponentially. The S&P 500 routinely has 2% daily moves, acting more like a commodity than a stock index. Mutual fund and hedge fund redemptions rise dramatically.
11. Stocks begin 2007 the way they ended 2006 -- very strong -- and the S&P 500 temporarily breaches 1450 in February. But by the end of the second quarter, under the brunt of the mortgage implosion, stocks drop nearly 15% and remain relatively range-bound for the rest of the year. The S&P 500 ends the year at around 1250, dropping by about 11% in 2007.
Reflecting the deflationary threats, one of the best-performing groups of 2006, industrial materials, morphs into the worst-performing group in 2007. With credit spreads flying open, the junk-bond market records its worst performance in over two decades and substantially underperforms almost every asset class in 2007. Technology, pinched by an abrupt demand plunge in consumer electronics, a listless response to Microsoft's (MSFT) Vista and a drop in business spending, ends the year with a 20% decline in value.12. Fidelity Management announces the introduction of its first dedicated short equity product. Alliance Capital follows with a similar product shortly thereafter. 13. With confidence in the markets and economies ebbing, merger-and-acquisition activity slows to a crawl by May. Several leading universities and endowments, which previously underwrote large private equity commitments, announce that they are dramatically reducing their exposure to that asset class. As the capital markets falter, institutional funds committed to real estate are also reined in, initially leading to a marked slowdown in the recent appreciation in office building values. While broadening economic weakness leads to only a slight rise in office vacancy rates, as the year progresses vacancy rates deteriorate more noticeably. REIT shares get hit hard (and fall below net asset values) as the historic relationship between REIT dividend yields and the yield on the 10-year U.S. note mean regresses. 14. A well-known corporate raider finds himself with a concentrated portfolio of illiquid investments and suffers large losses. ESL's Ed Lampert cagily watches the early-year private-equity euphoria and does nothing, opting to shore up his liquidity. But as equity prices drop in the second half, he is joined by several previous corporate partners in making a large acquisition in the entertainment/media field by year-end. 15. America's growing dependency on convergence and connectivity (computers control power delivery, communications, aviation and financial services) becomes a battleground and launching pad for a series of
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV