Batten Down the Hatches
Tuesday, May 30th, 2006
By Mitchell Clark, B.Comm. for Profit Confidential
We are now in a period of significant weakness for the broader stock market. Despite the solid first quarter showing from corporate earnings, inflation and interest rate fears will take over all trading action in stocks over the near-term.
This is why you need to be sitting on the sidelines right now. The stock market doesn’t have any other news to go on, and we all know that inflation exists in this economy. So, the stock market has to discount all this bad news over the next several months and it could get ugly.
Don’t be fooled, however, with the negative market action. My current view is that the market will be able to work out the inflation risks between now and the beginning of the fourth quarter this year.
I can’t predict the future, but corporate earnings remain very strong and my best guess is that stocks will reaccelerate later in the year.
The good news about a weak stock market is that it makes the best companies out there all the more attractive. All things move in a cycle and the stock market is no different. The stock market’s experienced significant capital gains since 2003, so we are due for a correction.
As investors, we’ll have to use this correction to our advantage. If it was my money, I’d cut my losers, ride any winners with strict stop/loss limits to preserve my profits, and sit on the sideline for the next several months.
I think it is very risky to consider taking on new positions when the trend in the broader market is down. Now is not the time to be reaping from your past investments. This time is past.
Now is the time to batten down the hatches, research new opportunities, and wait for the broader market to get past its inflation and interest rate worries.
Next Post: What Exactly is the Point of Hiking Interest Rates?
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Tags: inflation, interest rates, stock market, U.S. economy
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Mitchell is a Senior Editor at Lombardi Financial specializing in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for thirteen years, won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was as a stock broker for a large investment bank. While Mitchell is not working he enjoys fly fishing, motorcycling and tending to his hobby farm.



