Stocks still have some life in them and will surge once we get back into earnings season. Earnings is the main support for stocks and they are likely to be stellar next quarter. The concern however is the level of surprise. Positive earnings “surprises” are what pushes stocks higher, and there just aren’t that many surprises left. After all, how many times can you take the same person to the same restaurant every year on their birthday and yell, “Surprise!” before they figure it out? Although, recent economic numbers have been disappointing. This may bring down earnings estimates and set the stage for more positive surprises.
The game changer will be if Bernanke and the Fed bring in another QE program once things slow down (which I believe they will!). This will be very good for stocks in the short term, but make the future crash more devastating. This will also lower the value of the US dollar. There was a very good article in the NY Times last Sunday about the dollar: Needed: Plain Talk About the Dollar.
Given that we have a plethora of headwinds, namely slower growth and the end of QEII, investors must pray for peace but prepare for war. Investing is not an all-or-none game and people must put their money in the right investment that is right for them. Forget being all in or all out of the stock market – invest for need, not for greed! Most people only need to keep pace with inflation and taxes, and a little bit more, otherwise known as keeping pace with purchasing power. Therefore it’s critical to get the best return with the very least amount of risk possible.
This is the perfect market for true investors who want great returns but don’t want or need all the risk. I’m still finding great opportunities for our clients that have big upside potential with little downside risk, many with yields and/or dividends more than 8-10%. And that’s where we can help…
Our active hands-on approach to managing portfolios can help you manage risk and deliver returns. If you would like to discuss the market, economy or simply get a free second opinion on your portfolio, call me for a free consultation today at (916) 925-8900.