Stock Picking for New Opportunities—What It Might Take for Another Major Advance

Right now the broader market is taking a well-deserved break after a pretty successful first-quarter earnings season. This market needs a new catalyst if share prices are going to advance and there isn’t one present just yet, so stocks will trade on the economic news of the day. So far this month, the economic data are generally positive, but not overly so. I think we’re going to be in a slow growth environment for quite some time. What it might take for another major advance.

Right now the broader market is taking a well-deserved break after a pretty successful first-quarter earnings season. This market needs a new catalyst if share prices are going to advance and there isn’t one present just yet, so stocks will trade on the economic news of the day. So far this month, the economic data are generally positive, but not overly so. I think we’re going to be in a slow growth environment for quite some time.

With this backdrop, it’s fair to say that there won’t be any major tailwinds for equity investors in the near future. It’s a stock pickers’ market that’s due for a correction. It is well-deserved, however, and we have to roll with the action.

In my economic analysis, there weren’t very much home runs in the earnings department. The economy just isn’t robust enough to produce some major outperformance. I would say that, generally, large-cap results were decent in the first quarter and the outlook for the second quarter is about the same. For smaller companies, which are still reporting their numbers right now, there hasn’t been much in the way of outperformance either, although several mining stocks came out with excellent financial growth due to strong spot prices. This was expected by the marketplace and even the most robust miner is selling off right now.

The stock market’s been due for a break for quite a while and it’s natural for this to occur between earning seasons. As an investor, I would be in no rush to take on new positions in this market, but I would be keeping a close eye on gold positions. This is long-term trend that’s not going away.

A number of very solid small-cap gold mining stocks are retreating in this market and this is a sector that’s ripe for some strong trading action later in the year. As I’ve been writing, I still feel that the precious metal sector represents some of the most attractive growth opportunities for equity investors and that any major consolidation or correction in the sector would be a great entry point for new positions.

If there isn’t any new catalyst on the upside, there isn’t one on the downside either. This is a stock market that will likely drift over the near term. It’s called stock market malaise and it reflects a certain wariness as to whether economic growth is sustainable this year. Institutional investors remain unsure.

Stock picking over the very near term is going to be difficult as the broader market drifts. There’s no need for any major action just yet. I don’t see the equity market advancing in any meaningful way until we get to second-quarter earnings season. The current break has definitely been earned.