— “Ahead of the Street” Column, by Mitchell Clark, B. Comm.
While the broader market has been ticking higher, I still get an uneasy feeling about the market’s general trading action. I think the best word to describe the state of the equity market is fragile. No doubt, the recent rally was due to the Fed’s unwavering support for the status quo and that’s what the market wanted to hear. There remains, however, a lot of investment risk out there and that’s why a lot of individual investors aren’t participating.
It’s a tough environment in which to be a buyer right now. There’s not a lot of compelling evidence for taking on new risks. The broader market might keep ticking higher, but I wouldn’t be surprised if we get a pullback shortly. That’s the way the trading action’s been for quite a while.
The price of a barrel of oil still is the best near-term indicator for the stock market. Gold’s been holding its own, but it seems to be suffering from a lack of new investor interest. The spot price of gold looks to be waiting for a breakout, but won’t likely form a new trend unless there’s some major geopolitical event and/or major new weakness in the dollar.
It’s really a wait-and-see kind of market, but the outlook for corporate profits is still strong. This is why we will likely continue to experience what I call a “stealth rally” in stocks this year: choppy trading action with an overall upward trend on light trading volume. That’s my outlook right now.
As a speculator in stocks, the two most attractive sectors of the market include U.S.-listed Chinese companies and precious metal producers. As a new buyer, I’d lean more towards the mining industry as a theme. While there continue to be more and more U.S.-listed Chinese stocks in the marketplace, only a select few are really doing well. In fact, from my analysis, you can count the select few great companies on one hand only. The opportunities in Chinese enterprise are plentiful, but investors in those businesses are a fickle bunch and will jump ship on a moment’s notice. These kinds of stocks are much more suited to real-time traders, while you can be more of a longer-term investor in mining shares.
I can’t think of a better play on economic recovery than global precious metals and, to a lesser extent, the agricultural sector. These are two investment themes that encompass all the best stories there are to tell in China, India and at home.