It’s All About Participation—or Lack Thereof
Wednesday, November 3rd, 2010
By Mitchell Clark, B.Comm. for Profit Confidential
The S&P 500 Index is getting very close to the key resistance level of 1,200. It last hit that level in April this year, after which the broader market went through a period of intense negative sentiment. Let’s hope this situation doesn’t repeat itself this time around.
The main benchmark indices are reflecting the kind of sentiment that’s prevalent among the majority of investors. There’s a cautious optimism that both the economy and earnings results will show some meaningful growth over the coming quarters. What is lacking in the current market environment is any fervor to the trading action. Stocks have rallied nicely since the end of August, but there remains a real reticence about expectations for equity prices. In a way, there’s a feeling among investors that it’s a real toss-up as to what might happen to share prices in 2011. This uncertainty (based on the fundamentals) is still keeping a lot of investors on the sidelines, and it’s why the recent trading action has been on weaker volume. Investors are worried that the decent earnings generated so far this year won’t be sustainable in the New Year to come.
There just isn’t enough new information in the marketplace at this time to make a call on equities one way or the other. A lot of jurisdictions are seeing economic activity improve, while others that have been hit hard by the housing market collapse continue to struggle.
But, this doesn’t mean that corporate earnings won’t grow in a lackluster domestic economy. So many international large-cap companies are benefitting in the current environment due to growth in foreign operations (particularly Asia) and a weaker dollar. International operations are translating financially into solid earnings at company headquarters. This trend is likely to continue throughout next year.
For speculators, commodity exposure continues to be one of the most attractive asset classes to consider, especially if we get a meaningful correction in gold prices. Right now, currency movement is the single most important factor affecting global capital markets. U.S.-dollar-denominated commodities are in a currency play all their own. If we get the kind of inflation down the road that everyone expects, it will be the catalyst required to take a commodity like gold over the $2,000-per-ounce level.
While I do think that select large-cap companies will generate solid returns to investors over the next 12 months, the key world is “select.” There are still lots of big companies in the S&P 500 Index that are not performing in this market.
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Tags: corporate earnings, gold prices, housing market, large-cap companies, S&P 500, U.S. dollar
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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.
