The Ballad of 2007: Shake, Bake, Oscillate

The dramatic sell-off on Thursday as news of the assassination of former Pakistani Prime Minister Benazir Bhutto reverberated around the world knocked traders out of their slumber in the final week of trading in 2007. And short-covering early Friday could only do so much to keep markets afloat ahead of New Year's Eve on Monday. Absent a cavalry charge by buyers, the markets are likely to finish 2007 on a sour note.

It is worth pointing out that while traders and investors ultimately are paid on price, the fact of the matter is that volume has been exceptionally light in this final trading week of the year. In this, the markets are mirroring their pattern from 2006, when light volumes also characterized end-of-year trading. As such, traders and investors should be wary of interpreting too much from the selling between the Christmas holiday and New Year's Eve. Indeed, 2007 began with a surge in volume and generally higher prices as the markets advanced for six weeks before succumbing to the spring correction in February.

But there is little doubt that the average investor will likely be glad to see 2007 slip into the rear view mirror. While the markets were up for the year—continuing a streak that began in 2003—most of the gains came in the first half of 2007. From mid-May through year's end, the Dow Jones Industrial Average, for example, essentially oscillated above and below the 13,500 level: higher in July, lower in August, higher in September and going into October, lower again in November. 2007 was a thrilling ride for traders who had more than their share of intermediate, tradable trends and fairly well-telegraphed tops and bottoms. But even with markets finishing the year in the black, the average investor no doubt would have preferred a smoother ride.

The On-Again, Off-Again Recession of 2008

There are fewer things more bullish for stocks than fears of recession. The old saw that fill-in-the-blank has predicted seven out of the past four recessions has more than a little validity. And in the same way that in fighting it is the punch you don't see that tends to be the knockout blow, more often that not the recession that everyone seems to think is inevitable is the recession that rarely happens.

Recessions require more than just bad news—however much we have had an abundance of bad tidings in the second half of 2007. From the rising price of oil to geopolitical concerns—amplified this past Thursday with the assassination of Benazir Bhutto—and from collapsing home prices to disappointing holiday sales for retailers, there are any number of factors for investors to fret over. By November, a new name for the coming recession, the "grocession" was touted by Wachovia analysts as the creation of a "new and unprecedented economic phase" involving a multi-year period of real GDP growth between zero and 2%.

But perhaps the best argument against recession in 2008—or at least the most colorful—is the fact that 2008 is the fourth year of the presidential term. The presidential cycle, which calls for weaker markets in the first half of the beginning of a presidential term and stronger markets in the second half, has a remarkably strong track record, buoyed by the tendency of the party in power to attempt to put a "chicken in every pot" and thus improve the odds of the incumbent party being reelected to the White House. The presidential cycle may not be a good singular reason for investors to pile into stocks on January 1. But the fact that the traditionally bullish fourth year of that cycle will arrive against a backdrop of subprime-related pessimism, falling home prices, geopolitical anxiety and the perennial fear that the Federal Reserve may not do whatever it takes to help keep the credit faucets flowing may be enough to bring investors an upside surprise next year.

Stocks in the News

Warren Buffett's Berkshire Hathaway (BRKA | Quote | Chart | News | PowerRating) was in the headlines this week with news of its purchase of a majority stake in industrial conglomerate Marmon Holdings

Amazon.com (AMZN | Quote | Chart | News | PowerRating) reported its best holiday season to date this year. "Best Christmas ever" comes as the company announced that it would provide DRM (digital rights management)-free music as part of a deal with Warner Music Group.

Citigroup (C | Quote | Chart | News | PowerRating) is reportedly considering slashing its dividend by as much as 40% in a bid to raise capital. The company is also among a number of Wall Street financial institutions that is heavily discounting LBO debt.

Target (TGT | Quote | Chart | News | PowerRating) disappointed investors this week with its sales outlook as a major hedge fund manager added to his stake in the top American retailer.

Leap Wireless (LEAP | Quote | Chart | News | PowerRating) shocked investors with its restatement of three years worth of financial results from 2004 to 2007.

FedEx (FDX | Quote | Chart | News | PowerRating) was hit by a $319 million tax bill after the company failed to convince the IRS that its ground-delivery business workers were actually independent contractors.

Goldman Sachs (GS | Quote | Chart | News | PowerRating) awarded their CEO a bonus of $67.9 million in cash and stock for steering the company to continued profits amid the subprime mortgage bust that crippled many of the firm's competitors.

Merrill Lynch (MER | Quote | Chart | News | PowerRating) received a much-needed infusion of capital to the tune of $4.4 billion from Singapore's "state-linked" Temasek Holdings investment firm.

What to Look for Next Week

Monday: Nov. Existing Home Sales
Tuesday: None
Wednesday: Nov. Construction Spending / Chain Store, Retail Sales Index / ABC WaPo Consumer Confidence
Thursday: Initial Jobless Claims
Friday: Dec. Nonfarm Payrolls / Dec. Unemployment Rate

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 9 or 10.

Plains All American Pipeline (PAA@PAA | Quote | Chart | News | PowerRating) PowerRating (for Investors): 10
BCE, Inc. (BCE@BCE | Quote | Chart | News | PowerRating) PowerRating (for Investors): 9
Teppco Partners (TPP@TPP | Quote | Chart | News | PowerRating) PoweRating (for Investors): 9
Rostelecom (ROS@ROS | Quote | Chart | News | PowerRating) PowerRating (for Investors): 9
Magellan Midstream Holdings (MGG@MGG | Quote | Chart | News | PowerRating) PowerRating (for Investors): 9

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.

Crocs, Inc. (CROX@CROX | Quote | Chart | News | PowerRating) PowerRating (for Investors): 2
Furniture Brands International (FBN@FBN | Quote | Chart | News | PowerRating) PowerRating (for Investors): 2
Interoil Corporation (IOC@IOC | Quote | Chart | News | PowerRating) PowerRating (for Investors): 2
The 9 Limited (NCTY@NCTY | Quote | Chart | News | PowerRating) PowerRating (for Investors): 2
Talbots (TLB@TLB | Quote | Chart | News | PowerRating) PowerRating (for Investors): 2