The Dow Jones industrial average fell 18 percent, the S&P dragged 24.5 percent and the NASDAQ sunk another 34.6 percent in 2002.
On Tuesday, President Bush unveiled a $674 billion economic stimulus package that eliminates taxes on stock dividends, which has left investors wondering whether its time now to get back into the market.
So Early Show Financial Adviser Ray Martin provided some financial advice and tips on where to invest in 2003.
Experts say the bear market that began in early 2000 has been far more severe and has lasted far longer than the economic slump that triggered it. Some also argue that the stock market's biggest problems are far better publicized today than they were three years ago. This means that even though conditions actually have been slowly improving, they look worse.
However, pessimistic economists make much of the buildup of consumer debt. The debt levels are at a peak. But that burden is more than offset by low interest rates. Consumer debt payments are still lower relative to income than they were in the early 1980s. Perhaps the best news for stock investors is that inflation is near 38-year lows, and interest rates reflect those inflation trends.
So, where does that leave us? It depends who you ask.
Martin says most equity strategists from the major Wall Street firms predict gains of about ten percent for stocks in the New Year.
Martin says that for 2003 to be a good year financially, several things will have to happen:
- The situation in Iraq will have to become clear.
- Investors will have to see and believe the signs of economic growth and expansion. This will mean increasing corporate spending and a stronger job market.
- Companies will have to regain the faith of the investing public by reporting their numbers accurately, on plan and with no surprises.
- And the wild card is that there must be no major act of terrorism against the U.S., either domestically or abroad.
For 2003, Martin says with stocks of large and widely known companies selling at high valuation levels, the best bargains can be found in stocks of small and mid sized companies, which are presently priced at valuations not seen since 1980. He recommends small- and mid-cap funds as well as a good allocation of larger cap and international equities.
Martin says he likes financial services. He feels the worst is over for them. Martin also likes some technology, data and clearing transactions, generic drug producers, health care service providers and education services.
Investors who loaded up on bond mutual funds over the last several years need to take some of their gains of the table in 2003, he says, and either invest the gains back into stocks or into short term bond funds, corporate notes or Series I bonds.
Martin advises not to let cash sit idle on the sidelines. He says it is better to commit stocks and bonds, but if you can't, then take the "sure thing" route and use the cash to pay down consumer debt, student loans, car loans, credit cards and refinance mortgages.
Here are some dividend paying stocks Martin likes:
Sample High-Yield Stocks:
Washington Mutual (WM) 4.86%
Phillip Morris (MO) - 6:48%
Dow Chemical (DOW) 4.34%
HJ Heinz: (HNZ) 4.78%
Exxon Mobil (XOM): 2.53%