Stock market gyrations in July reflected investor sentiment as experts and individual investors alike followed the ups and downs of the U.S. debt-ceiling debate and financial woes afflicting European nations. Mixed signals abounded, including positive news on second quarter earnings from major U.S. companies and the comeback of the IPO market, set against lackluster economic recovery in the U.S. and an unemployment rate of 9 percent plus. If trying to make sense of positive earnings and corporate news among so much financial uncertainty confounded the experts, it’s not surprising that individual investors feel confused. Perhaps the only safe assumption is that the three-year bull market seems to be halted temporarily with no strong indication yet whether it is headed up or down. Is the glass half full or half empty? Despite the ups and downs, it appears that many pundits are generally optimistic.
In response to uncertainty, experts are developing different investment strategies to leverage opportunities while hedging their bets. Here are some of the factors and issues under consideration:
- Stellar earnings from industry leaders like Apple, McDonald’s and Coca Cola generated excitement on the Street in July. How can such results be possible when the economy remains sluggish and unemployment tops 9 percent? All these solid performances reflect the global reach of those companies – their earnings are not solely reliant on the purchasing power of U.S. consumers.
- Although experts don’t predict earnings increases to match the huge gains made a few years ago, analysts are predicting strong 15 percent growth in 2011 and again in 2012 for the Standard & Poor’s 500 index companies. In short, many experts believe strong earnings will offset the myriad of worries generated by fiscal crises and uninspiring economic data.
- The turmoil in the Middle East scared investors earlier this year, but growth –especially in regions like South America, Southeast Asia and Eastern (non-Euro) Europe – is luring investors back. Many advisors are recommending that clients include emerging markets in their investment mix. They note that while emerging markets might be riskier, some countries have better track records than others when it comes to political and currency stability.
- The debt-ceiling discussions in Washington have had a negative impact on the market. However, indications suggest that the smart money is betting on a deal being reached before the default deadline. Politics being what it is, expectations are that the hyperbole and disagreements will persist right up to the deadline, when a consensus will be reached. An agreement is expected to boost stock prices.
- The problems that beset European countries tied to the Euro are serious, but economists are not predicting calamity. The Greek fiscal crisis is but one of several meltdowns that now include Ireland and Portugal – with Spain and Italy poised to join the ranks of debt defaulters.
Uncertain times demand cool thinking as well as smart strategies. Analysts – whether bullish or bearish – believe there are opportunities to leverage and ways to hedge your bets. Whatever their approach, investment pros trust that strong returns require investors to hang on and invest for the long-term.
The above are general comments and are not intended to replace the need for specific investment and tax advice from qualified professional advisors.