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Quarter-End Insights

The Year in Review

Volatility creates some buying opportunities in the market.

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Liquidity and credit woes stemming from heavy issuance of subprime mortgages continue to wrack the financial markets as 2007 draws to a close. Financial and retail stocks are among the most battered, as investors worry about firms requiring large amounts of short-term financing or depending on robust consumer spending. Still, despite a seemingly endless parade of bad economic news and pleas from the financial community to the Federal Reserve for lower interest rates, the Morningstar U.S. Market Index has managed to post a 5.7% gain for the year through Dec. 17.

Federal Reserve Chairman Ben Bernanke has been accommodating with three rate cuts, though certain corners of the market have been disappointed, with their denizens expecting more aggressive attempts at relief. Morningstar financials analyst Rachel Barnard, by contrast, has raised questions about the Fed's ability to influence home prices directly and alleviate the credit crunch generally, as the fed-funds rate appears to be less tied to mortgage rates than it had been previously. (See our related video report.) Bernanke continues to weigh the need for liquidity against the possibility of lower rates stoking inflation.

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John Coumarianos has a position in the following securities mentioned above: HD, KMX, BRK.B. Find out about Morningstar’s editorial policies.