NEW YORK -- The wild ride on Wall Street is continuing, but for a change, the stock market roller-coaster headed higher on Friday.
By the early afternoon, the Dow Jones industrial average (^DJI) had soared by 300 points, moving back above the 16,400 level and erasing a large fraction of its big losses from earlier in the week. Still, the blue chip index is down nearly 900 points from its record high of 17,279 on Sept. 19. That's a drop of more than 5 percent. The broader S&P 500 (^GPSC) was up around 1 percent at 2:30 p.m., but is still down about 6 percent from its all-time peak.
Trading remains extremely volatile, and analysts say any reports of bad news, either here at home or overseas, could roil the market, sending it into another tailspin. However, many believe that the quick blowout we witnessed this month may be just what the market needs to reset and before it starts another longer-term move higher. In a letter to clients, U.S. Trust says it believes a "bottom is building" that should lead to solid gains by the end of the year. It believes the S&P 500, which began the day virtually flat for the year, will end the year with a gain of about 7 percent. That would put it back near 2,000.
It's not likely to be a straight line upward though. Many technical analysts say the major averages are likely to re-test their lows from earlier this week. That means they are looking for the market to re-confirm that there's a solid floor, and establish a strong base for the next leg of the long-running rally. The bull market has been underway for five years, and there hasn't been a 10 percent correction since October 2011. That is nearly double the length of the average run without one, but the bulls are convinced that the rally will continue well into next year.
Friday's big gains come on the heels of upbeat earnings news from bellwether companies such as General Electric (GE), Honeywell (HON) and Morgan Stanley (MS). Next week is one of the busiest on the quarterly earnings calendar, with results due from Apple (AAPL), Boeing (BA), Yahoo (YHOO), General Motors (GM), Amazon.com (AMZN) and hundreds of other companies. Analysts say that strong earnings and positive outlooks for the rest of the year could provide the spark needed to restart the rally.
Investors are also keeping a close eye on events overseas -- both economic and political. There were indications from Europe on Friday morning of new stimulus efforts may be on the way from the European Central Bank, as well as signs that interest rates will remain low.
In addition, energy prices are at their lowest level in more than a year, which could give a lift to many industries, and boost consumer confidence. The Thomson Reuters/University of Michigan preliminary index of consumer confidence this month unexpectedly rose to its highest level in seven years, helped by the sharp drop in gasoline prices and improvements in the labor market.
The note from U.S. Trust advises its clients that "periods of equity weakness in the coming weeks" could provide some good buying opportunities for investors.
10 Financial Land Mines That Can Decimate Your Net Worth
Stocks Surge as Wild Week on Wall Street Continues
Managed to get that raise or promotion? Fantastic -- now don't go out there and spend it all immediately. In classic "keeping up with the Joneses" fashion, too many of us see an increase in salary or a sudden windfall (like an inheritance) as an excuse to take our lifestyle up a notch. We buy bigger houses than we need, get the latest gadgets even though ours work just fine,and spring for fancy steak dinners just because we can.
Instead, whenever your financial situation gets a boost, consider the best ways to put that money to work for you. The truly wealthy are those whose money continues to grow and earn them more, even when they're not actively doing anything with it.
The average American household that carries credit card debt holds a balance of around $15,000. If you're among those who have a credit card balance, you've probably seen the little chart on your monthly statement telling you how much you'll pay in interest over the next several years if you make only the minimum payment. (If you haven't, look at it.) The same chart will also compare that to a "suggested" payment that's slightly higher.
Our recommendation? Throw everything you can at paying your balances off as fast as possible. And make sure not to take on any additional debt in the future; if you can't pay for a consumer good out of pocket, don't finance it.
We don't demonize student loan debt the way we do credit card debt because we see an education as an investment -- and higher education often is the difference between one income bracket and another. Similarly, many people justify taking out a car loan by stating that they need a car to get to work.
That said, debt is still debt, and the longer you take to pay it off, the more interest you'll pay. Once you've freed yourself of credit card debt, paying down your car and student loan balances should be next on your list.
Whether it's to handle an unexpected car repair, a sudden illness or a major plumbing problem, you should always have some money set aside to cover unforeseen expenses. Set up a regular monthly transfer from your checking to your savings account to earmark this money before you're tempted to touch it. If necessary, cut back in another budget category (like eating out or entertainment) to free up the funds to save more.
Putting aside a little each month could prevent you from getting socked with a hefty bill you can't afford and then need to finance.
No matter your age, you should be adding to your retirement funds -- such as your 401(k) or individual retirement account -- each month. Just setting aside money sporadically won't cut it; you need to identify how much you'll need to live on once you stop working and monitor whether you're on track to reach that amount.
Here's a quick-and-dirty rule of thumb: multiply your annual spending by 25. This is the amount you'll need in your retirement portfolio, if you assume that you'll withdraw 4 percent per year to live on during your retirement. In other words, you'd need $1 million in your portfolio to live on $40,000 annually. Creating a plan will help you make sure you're able to retire the way you envision.
A home is a big investment, and sometimes that investment doesn't wind up netting you the return you thought it would.
The biggest culprit is having too large a balance on your mortgage, which detracts from your own personal stake in the current market value for your home. The sooner you pay this amount down, the better your home equity will be.
You also want to be careful when purchasing a new home. Buying in a neighborhood that's on the downward spiral or buying the most expensive home on the block, likely won't net you a good return when it's time to sell. Also take care to stay away from custom renovations (like turning the garage into a recreation room), which could negatively affect your resale value.
Paying high investment fees eats away at your gains. And since your gains compound over time, this creates a domino effect that can really chip away at your wealth. Take a close look at your investment companies' fees and shop around to make sure they're not taking more of your money than they need to be.
If you don't have a long-term investment vision and are simply playing the market, you could seriously undermine your wealth-building potential. Stop paying attention to market fluctuations, media pundits and the stories of your friends and family. Instead, create your own long-term investment strategy that will maximize your overall returns. Resist the urge it play it ultra-conservative (or fall for get-rich-quick schemes) and educate yourself on the best way to make your dollars work for you.
If you're having trouble making sense of your options or want a second opinion, seek the help of a trusted financial adviser.
Based on your experience and seniority level, education and industry, you should have a fairly good idea how much you ought to be making at your job. If you don't, check out a site like PayScale to get a ballpark figure.
If you're not making what you're worth, you're doing more than leaving money on the table; you're also losing all the compound growth and investment returns that money could be generating for you. Invest in yourself with professional development and continuing education, make the case for that raise or promotion, or seek out a company who will value you higher.
If you don't have proper insurance coverage, you're taking a very big risk that could come back to bite you. Too many people think the worst can't happen to them, but the hard truth is you can't predict the future, and scrimping on sufficient insurance is never a good idea.
Of all the things we're hesitate to part with our money for, adequate insurance coverage should not be one of them. No matter your age, everyone should be properly covered with:
Homeowner's or renter's insurance.
Flood insurance (if you live in a flood-prone area).
Umbrella liability insurance (especially if you own a small business).
If a spouse or children relies on you for support, make sure you have a decent term life insurance policy, as well.