For Teachers: Stock Market Lessons From Spring 2008

The Stock Market Game (SMG), is a curriculum-based teaching tool that allows students to invest a hypothetical $100,000 online stock portfolio to learn about long-term saving and investing.

The following is a recap of highlight lessons from the SMG Week in Reviews published during the game's Spring 2008 session.

The Dow and the S&P 500

Despite a rally that put the Dow more than 400 points to the upside last week as of Thursday's [Jan. 31] close, the Dow and the S&P 500 suffered significant losses during the month of January. The Dow lost 4.6% since the beginning of the month -- its worst since January 2000, while the S&P 500 lost 6.1% -- its worst since 1990. Many on Wall Street are touting "as January goes, so goes the year." But what does this all mean?

According to the Stock Traders Almanac, the performance of the S&P 500 in January is often an accurate predictor of how the overall market performs during the entire year. The Almanac states this theory has proven true 75% of the time since 1950.

Read the full article.

The Service Sector

On Tuesday, Feb. 5, here in New York, 2 million of our closest friends joined us in the Canyon of Heroes (lower Broadway) to hail the most unlikely of heroes (the Giants who beat the seemingly "perfect" New England Patriots). But over at the corner of Wall and Broad, a wave of fear washed over the New York Stock Exchange trading floor as the Dow lost 300 points. The Nasdaq and S&P didn't fare any better.

What had traders so frantic was the jaw-dropping fall in the Institute for Supply Management's nonmanufacturing survey. The survey is sent to service sector business managers across the country. The service sector represents 70% of our economy. The ISM's non-manufacturing survey asks purchasing managers how many orders they think they will place in the next month. Thus, the survey is thought to be a predictor of business activity in the economy and it recorded the worst month-to-month loss since its inception in 1998...

There have been freakish drops in the ISM number before that ended up signaling nothing. Plus, optimists (bulls) will tell you, the respondents to the survey send their reports to ISM early in the month. Therefore, respondents would not have been aware of the recent Fed rate cuts and the stimulus package approved by Congress on Thursday, Feb. 7.

Read the full article.

Investing in What You Know

Activision ATVI is a video game producer that recently came out with a game called Call of Duty 4, which [TheStreet.com's Priya] Ganapati reported is selling like hot cakes. We at the Stock Market Game don't pretend to know what type of hijinks this merry band of virtual brothers is up to, but many of your students do and they've been buying and playing this game.

So, as your students walk around in their everyday life, you should ask them to observe the world around them and then ask themselves, "Would the companies that make the soda I like or the sneakers I wear or the bicycle I ride make good investments?" Buying what you know doesn't guarantee a winning portfolio, but it's a great way for students to get started and to learn that, however unwittingly, we all are part of our economy and capital markets.

Read the full article.

Gross Domestic Product

Last week [Feb. 25-29], the U.S. dollar dipped further, reaching a new low against the euro, after data confirmed the U.S. economy nearly screeched to a halt at the end of last year, limiting the Fed's options as it tries to steer through the housing and credit crises. The Commerce Department report stated the U.S. economy, or gross domestic product (GDP), grew at a scant 0.6% pace during the October to December quarter, compared with a much healthier 4.9% during the previous quarter.

GDP measures the value of all goods and services produced in the United States and many believe it is the best barometer of the country's overall economic health. Economists anticipated the fourth-quarter GDP would have been bumped up to a 0.8% growth rate, but the housing report looked even bleaker in the new report. The finding helped push the 15-nation euro to a record high of $1.5229...

Concerned the current problems could intensify and further hurt the U.S. economy, Federal Reserve Chairman Ben Bernanke made it clear again last week he stands ready to lower a key interest rate once again.

Read the full article.

The Energy Sector

Renewable energy stocks did amazingly well in 2007 due to record oil prices that lifted the broader energy sector in general. Solar was the big winner with First Solar FSLR a company that makes solar-power modules without silicon, surging 795% last year alone. This company claims the industry's lowest manufacturing cost per watt and may be a company to watch during 2008.

Read the full article.

The Financial Sector and Liquidity

The markets tumbled on Monday, Mar. 17 after JP Morgan Chase & Co. JPM agreed to pay just $2 per share to buy Bear Stearns BSC, the country's fifth-largest investment bank.

Wall Street was astounded with the terms of the deal as Bear's stock closed at $30/share on Friday, Mar. 21. It had been more than $70 per share earlier in the month and was down from $170 per share just last year.

In a strange twist, Bear Sterns stock rose to over $5 per share after the deal [Bear Sterns has recently been trading in the $10 range]. The speculation is that the $2 share price offered by JP Morgan will be renegotiated upward to pacify hopping mad Bear Sterns shareholders who believe the Fed sold them down the river in the JP Morgan deal.

Read the full article.

To learn more about The Stock Market Game, go to www.stockmarketgame.org.