No doubt this is an equity market that wants to go higher. The market is due for a correction; it just experienced a small consolidation; but no matter what the economic analysis, institutional investors are buying. They are buyers right now because the earnings outlook is great, interest rates are low, and there isn’t anything else to invest in that has above-average return potential.

The S&P 500 Index seems to have broken through the 1,300 level, which has been a barrier for a while (though it could still retreat). With the number of earnings preannouncements low, 1,500 seems to me like a cakewalk for the index. My money is on rising stock prices, not the other way around.

The good news is that, even at 1,500, the S&P 500 Index won’t be expensively priced. I would say it would be fairly valued and this bodes well for the rest of the year. As we’ve seen recently, the economic data aren’t uniform. Revised fourth-quarter gross domestic product numbers were solid, yet February orders for durable goods were below expectations. I think this mixed trend in economic news will be with us for quite a while. I don’t see us having runaway economic growth anytime soon and, while things may be slow at the Main Street level, Wall Street will continue to bet on a brighter future. The present doesn’t matter on Wall Street—only the past and the future.

Stock picking in this market is also a choppy affair and, just like with the economic news of the day, some companies are doing better than others. It’s difficult to imagine an across-the-board acceleration in business conditions. As an investor, you really need a basket of special situation stocks in order to beat the market.

As we’ve been saying consistently for a number of years now, investing in gold remains a good idea, even if you’re a new investor. A number of smaller gold mining companies recently saw their stock prices accelerate significantly after reporting excellent financial growth in the fourth quarter. While the returns might be incremental, as so many gold stocks have already gone up, there is still plenty of good trading action in this sector if you like to speculate in gold shares. I still wouldn’t have a balanced equity portfolio without holding at least one gold producer. Global capital markets continue to be behind gold not only as an investment, but increasingly, as a store of value over some currencies as well.

The best stock picker I follow, Jim Rogers, figures that a correction is probable in stocks and commodities. But he always adds that, when it happens, it will be a good buying opportunity. He figures the commodity price cycle has another 15 years or more to play out.

— by Mitchell Clark, B. Comm.

It doesn’t seem like there’s much news that can stop this stock market. Even with a shaky start to the week, the broader market climbed back, as institutional investors keep buying.

According to data provided by the National Stock Exchange, which is a niche exchange operating out of Jersey City and Chicago, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) experienced substantial net inflow in May, growing some $17.0 billion from April. According to the data, the total net inflow into U.S.-listed exchange-traded funds so far in 2009 was some $30.0 billion, with long international equity ETFs garnering the most attention.

This explains why one of my favorite ETFs, the iShares FTSE/Xinhua China 25 (NYSE/FXI), is doing so great in this market. In fact, ever since I first began writing about this ETF in this column in mid-February, it has appreciated over 50% to its current level of around $38.00 per share. This is a strong performance for a large-cap fund and it illustrates the degree to which institutional investors have decided to participate in this market. Since the March low, this ETF has basically gone straight up, while offering a dividend yield of just under three percent.

I like ETF investing and so do a lot of institutional investors. The entry and exit costs are cheap, the fund fees are cheap, and ETFs allow you as an investor to express a view in the marketplace without having to use all the money in your portfolio. So, if you want a little exposure to China or perhaps some gold, but you aren’t sure which individual stocks to own, then you can easily express this view by buying shares in a related ETF. Lots of institutional investors do this. Even pension and endowment funds take on large positions in ETFs when they think there’s a good opportunity.

In the case of iShares, which was started by Barclays Global Investors, 2008 was the second strongest year for ETF inflow after 2007. Last year, the firm secured $56.0 billion in new ETF assets after garnering a record $58.0 billion in 2007. Forty-four percent of U.S. iShares net inflow came from institutional investors, with the remainder coming from individual investors and financial advisors. At the end of 2008, there was a total of a quarter trillion dollars invested in the iShares ETF family, and the numbers show huge net inflow coming at the expense of traditionally managed mutual funds.

The other great thing about ETFs is that, for the most part, they are very transparent. Every day you know the exact closing price and you know upfront the percentage management fee to run the fund and your broker’s commission to buy or sell. There aren’t any fees that are hidden or front- or back-end loads, otherwise known as sales charges. I never understood why a brokerage firm or a mutual fund felt like it had a right to charge a sales fee just so you can have the privilege of giving them your money. Those fees have always been rip-offs for individual investors.

Last year, the top iShares ETF in terms of inflow was the iShares Russell 2000. The seventh largest ETF in terms of inflow was my favorite, the iShares FTSE/Xinhua China 25 (NYSE/FXI).

I’m all for buying and selling stocks in a speculative portfolio, but in terms of building a few core positions as an investment, I think you can’t beat a well-known ETF.

Remember Cbeyond Incorporated (NASDAQ/CBEY)? This growing technology company is doing great in this market and despite its high valuation, just keeps on going up.

I first wrote about this company in this column in September of last year. The stock was trading around $25.00 per share. Now, the stock is trading around $38.00 per share and looks to be in a solid upward trend.

Cbeyond is based in Atlanta and sells voice and broadband telecom services to small businesses in Chicago, Dallas, Denver, Atlanta, Houston, and Los Angeles. The company offers traditional local, long-distance, and Internet access; as well as enhanced applications like Web hosting, data backup, and file sharing. The company maintains its own private network that uses “Voice over Internet Protocol” (VoIP).

Who would have thought that a telecom company selling long distance would become so successful? In the first quarter this year, the company’s revenues grew 33% over the comparable quarter to $63 million. Net income was $2.7 million in the first quarter, up quite a bit from a net income of $200,000.00 or close to breakeven. The company finished the quarter with $39.4 million in cash and zero debt.

Cbeyond is the perfect example of successful mid-cap equity investment. What the stock has always been is expensive. Yet, despite its high valuation, the stock just got more expensive. In a sense, you are getting what you, as an investor, paid for — you are getting solid growth.

Some institutional investors won’t even consider a stock for investment if its valuation is over a certain level. I think it is a mistake to act like this. In the stock market, a company’s valuation is relative. There is no one benchmark to readily determine what a company’s valuation should be.

Cbeyond is probably the kind of stock that many investors wouldn’t touch because of its high P/E ratio. That’s too bad, because the stock has been such a great wealth creator. In the end, I think it’s important to have a mix in your portfolio. This includes mixing up higher valuation companies with lower valuation companies. All that matters is if the stock is going up and you have solid risk controls in place.

Here’s an interesting company that’s in the lighting business. This company has many of the attributes that I like to see in an investment opportunity. The company has innovative, class- leading products; it is growing financially and is garnering an increasing following from institutional investors.

The company is called Color Kinetics Inc. (NASDAQ/CLRK). The company sells an award-winning line of solid-state lighting products, with a patented technology called “Chromacore” which generates color and white light for use in high-performance lighting environments.

Founded in 1997, the company is headquartered in Boston, MA with offices in the UK, China, and Japan. The company went public on the NASDAQ earlier in 2004. Just in the last year, Color Kinetics was awarded nine new U.S. patents and two new regional European patents.

In its most recent reporting period, the fourth quarter of 2005, the company generated revenues of $14.5 million, representing an increase of 35% over revenues of $10.7 million generated in the fourth quarter of 2004. Net income for the fourth quarter came to $1.4 million, or $0.07 per fully diluted share, compared to $626,000, or $0.03 per fully diluted share, for the fourth quarter of 2004.

For the full year ended December 31, 2005, total revenues came to $52.9 million, up 32% over revenues of $40.2 million generated in 2004. Net income for the full year grew to $4.3 million, or $0.22 per fully diluted share, compared to $2.4 million, or $0.14 per fully diluted share in 2004.

Some of the company’s specialty lighting installations in 2005 were at the Time Warner Center and the Lake of Dreams at Wynn Las Vegas, and the sets of The Tonight Show and The Oprah Winfrey Show.

Color Kinetics is a young company and I think it has a bright future (sorry about the pun). Companies pay big bucks for their lighting needs and Color Kinetics not only provides traditional lighting products, but is innovating new ones to satisfy the needs of its customers.