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July 6, 2010 - The East Coast is broiling, hitting temperatures of 100 or more. In contrast, the Dow Jones Industrial Average (DJIA) is losing 100 points or more in a day. When it does rally, it can't seem to hold on to gains. So while easterners burn, investors feel the heat.
The explanation is simple: nothing's going on. Sure, there are some economic releases, but they're not very meaningful. Unemployment moves a little bit, up or down. It's only if it were to decrease significantly that it could make a real difference. Housing sales have plummeted. Turns out the housing credit of $8000 that ended in April was important. New housing starts are down even further this month as builders aren't breaking ground for a while. All the stimulus from the government is sitting in corporate treasury bank accounts or simply in the banks, waiting to be put to work, once people get a chance to work.
Everybody's waiting. The only bit of news on the horizon that has a chance of breaking the current dry spell is earnings. They'll be coming out in about a week. Look for some decent numbers as many companies benefitted from higher consumer spending in the quarter as well as inventory build up. But the earnings numbers themselves won't be the focus for investors. It's what management says about the current status and unfilled orders, what they think the future looks like. That's what will move the market. And don't be surprised if the movement is lower.
Housing is weaker since the end of April. Jobs are fewer in the last month, especially since the Census workers are no longer counting. While interest rates are low, no one is borrowing because there isn't enough demand to justify going into debt. These are big, mostly immoveable objects that take several months to correct. One month of good news won't be enough to break current investor pessimism. There will have to be a string of months, each better than the last, for investors to believe the economy is truly recovering.
So what does an investor do? Mostly wait. Be patient. Double check why a stock is in the portfolio. Make sure earnings are growing, as are revenues. Examples: Ford Motor, Apple, Google, Acme Packet, NTELOS (for more, check the investing columns at The Online Investor (www.theonlineinvestor.com)). There are a number of good companies growing in this difficult environment. The key is to buy them without paying too much for them. There are still some hidden gems, but you have to look hard.
As I watch a number of stocks, nothing is really moving up when a rally happens. Some stocks do better but then fade over the next few days. There isn't one that continues an upward trend. There's a tendency in these dog days to want to sell a slow moving stock and try to catch some of the "action". There is no action right now. Certainly selling losing stocks always makes sense, but to simply sell and try to guess which stock will be the next big winner is an almost impossible task.
Be patient. If you own good stocks, hold on to them. If you have weaker ones, take losses and buy stronger ones. They'll be the ones that lead this market higher when the real rally gets here. When that is, no one knows. In the meantime, don't expect any great things to happen. It's summer, and the livin' ain't easy. - Ted Allrich |
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