Can’t Wait to See Those Numbers

by Mitchell Clark, B. Comm.

I think this third quarter is going to be a good time to be taking on new positions in the stock market, barring any major shocks to the system. If there’s one thing that corporations are good at, it’s reducing their expenses in a recession. They do this in the form of production cutbacks, layoffs, reduced wages, etc. It’s difficult to generate top-line growth when the economy isn’t growing, but a can very easily keep a lid on its costs. I’m actually optimistic that companies will start to show renewed growth as early as this third quarter.

The stock market is still churning, but institutional investors want to be buyers in this market. There is no alternative to betting on the future, especially as investors think that the future can’t be worse than the recent past.

Even with the mixed signals being presented by the economic data, oil and gold are holding up very strongly. Seventy-dollar oil says to me that traders are anticipating an increase in demand for the commodity this year. Nine-hundred-and-fifty-dollar gold says to me that new demand for the commodity from Asia is just around the corner and that traders are keeping a watchful eye on inflation, not really for now, but for the future.

The stock market churning is actually a strong signal in my mind that the market will go higher in the coming quarters. If this is the period of consolidation that so many analysts have been expecting, then it isn’t very pronounced. Like I say, there really isn’t any alternative to betting on the future. If you’re a big investor, cash doesn’t pay anything.

I continue to think that large-cap Chinese equities will lead the global equity marketplace for the rest of this year. As evidenced by my favorite ETF, FXI on NYSEArca, Chinese stocks have experienced a blazing recovery since the financial collapse last year. Chinese stocks were already in a correction before the credit crunch hit and are now very well positioned for a sustained period of capital gains.

Domestically, large-cap industrials seem to be losing some steam right now, but technology is a bright spot. It will be very telling to see what large-cap technology companies say about the second quarter this year. My bet is that the numbers will generally be better than expected.