Starting to think about 2008

Starting to think about 2008
But there are already a few points to be made about next year.

Historically, January has been one of the strongest months of the year. If the market doesn't show gains, it could be a tough go. Plus, according to the Stock Trader's Almanac, the market has risen in January nine out of past 13 presidential election years since 1950.

But the financial sector of the market faces continued turmoil because of the havoc created by the subprime-mortgage mess. This is important because financials represent nearly 20% of the market capital of the S&P 500. The financial sector of the S&P 500 is down 21% this year. There will be a near-constant debate in the early part of the year about whether the financials have bottomed. Most analysts see the bottom coming around mid-year.

Oil prices will be a constant issue, making life miserable for consumers around the world. The effect of high fuel prices, combined with the stress of facing financial companies, will give the Federal Reserve all the excuse it needs to cut interest rates at the end of January and probably once more after that.

Technology stocks had a monster year, especially big technology stocks like Apple, up 136% this year; Research in Motion (RIMM, news, msgs) up 175%; Amazon.com (AMZN, news, msgs), up 139%; and Google (GOOG, news, msgs), up 53%. The Nasdaq-100 Index is up nearly 20% on the year. There's lots of talk that this probably will continue. But remember that tech bubbles can be very nasty if you get out too late.

Lastly, foreign countries with huge cash stock piles, known as sovereign wealth funds, have been investing directly in giant American financial institutions such as Citigroup (C, news, msgs), Morgan Stanley (MS, news, msgs) and Merrill Lynch (MER, news, msgs). These include Abu Dhabi, China and Singapore. This trend is likely to continue, in part because the dollar is so cheap. But if what happens if the stocks don't start turning around? Watch out.