WHAT’S NEXT FOR THE MARKETS AND THE IPHONE?

Neal A. Deutsch, CFP^®

Published in Rivertown Journal, August 2007

The year was 1984 and the TV broadcast was Super Bowl XVIII. That platform provided Apple with the opportunity to debut the first Macintosh PC with one of the most famous TV commercials in history. Over the years, Apple has learned to deal with both the success of products such as the Macintosh, as well as the bitter failure of products such as the Macintosh TV in 1993, discontinued less than six months after its introduction. One thing has been consistent over the years - Apple has enjoyed a strong record of designing and selling innovative products that helps to shake up the competition. For the first half of this year Apple employed its marketing tactics and created anticipation and hype for the consumer that is rarely seen for a new product leading up to the introduction of the iphone.

Now it’s time to deliver what was promised! In the months to follow we are sure to hear reviews expressing various degrees of pros and cons for the product. Apple has a goal of capturing a one percent share of the wireless market over the next year. While that may not sound overly ambitious, it is a formidable task for a company that is brand new to the wireless marketplace. Achievement of that goal will go a long way to determining whether investors will remain upbeat about the company for the foreseeable future.

Speaking of being upbeat (hey…it’s my nature!), will investors continue to be optimistic about the stock market as we move into the second half of the year? Second quarter performance certainly provided sufficient hype of its own for investors. The Dow Industrials were up 8.5%, the S&P 500 up 5.8%, and the Nasdaq up 7.5%. This performance contributed to the positive results for the first half of the year across the board. However, despite the strong gains, each of these benchmarks was slightly negative for the month of June, the quarter’s final month. The Dow was down 1.6%, the S&P 500 down 1.8%, and the Nasdaq down 1%. Consequently, the quarter ended with some tension in the technical makeup of the market. However, considering the daunting hurdles that the stock market had to jump over in June, from much higher bond yields to the potential collapse of several hedge funds, it is impressive that the market showed as much resilience as it did.

So what are some of the issues that we take into the second half of the year? From the energy standpoint, crude oil ended the quarter above $70.barrel creating worries over the availability of summer supplies and rising global tensions sending crude to a new nine month high. The U.S. housing market is still weakening. The inventory of previously owned homes rose to a sixteen year high in relation to sales in the month of May. The inventory of new homes fell in May, but the overstock still represents more than a seven-month supply, well above the more typical four-month supply.

The positive note, and possible white knight for Corporate America to sustain a reasonable growth rate may be the global economy. That economy has shown repeated signs of no longer being leveraged to the U.S. economy. The emerging economies have been very robust and there has been a resurgence of growth in Europe. U.S companies may be able to export economic growth to satisfy Wall Street. The weak dollar certainly helps and the fact is that about 40% of the S&P 500’s operating profit is already coming from overseas.

So now we turn our attention to the second half of the year. If any of our readers were fortunate enough to obtain an iphone (assuming they wanted one), I congratulate you on your apparent perseverance in achieving your objective. More importantly, we hope it lives up to all of your expectations. Apple wants to hear that and the markets do also. It sure would be nice to see the U.S. consumer continuing to play an active role in support of the economy. Have a great summer-don’t forget your lotion!

Neal A. Deutsch is a Certified Financial Planner^™, Registered Securities Principal and President of Chestnut Investment Group in Suffern, NY, helping people with financial planning since 1984. Please feel free to call Neal at 845.369.0016 or email him with your questions at neald@chestnutinvestment.com Feel free to visit his website at www.chestnutinvestment.com