It’s pretty clear that the economy will be in a slow growth state for quite some time and the most important economic statistic to follow will be consumer spending. We know that the economy is going to be lackluster for the next several years, because government spending will continue to be reduced, putting pressure on any income growth. It’s the age of austerity and it’s going to last for quite a while.
The level of 1,250 is a really important one for the S&P 500 Index. The market got very close to this level back in March and again in June. Any breakthrough would be a sell signal from the range-bound trading pattern we’ve had since the beginning of the year.
All the uncertainty about the economy and the debt makes investing in stocks that much more difficult. Investors can short the market for a capital gain, but there’s no way to earn much in the way of income from this strategy. In addition, most individual investors don’t like the idea of betting on the market dropping. People with money to invest want to own a piece of a growing enterprise. Very few like betting on a downfall.
We know why the spot price of gold keeps ticking higher and investing in gold seems like one of the few investment strategies worthwhile considering how slow the economy really is. Large-cap companies have been growing their earnings because of strong cost control and international operations, which benefit from a weaker dollar. A lot of big companies reported that domestic business conditions are improving, but we’re not getting the same sentiment at the consumer level. The industrial economy is doing better than the retail economy.
There’s no rush for any equity investor to be going long this market, especially as the sovereign debt issue is overhanging everything. It’s going to take quite a bit of good news for investor sentiment to turn positive. Institutional investors will still be buying large-cap, dividend-paying stocks, because this is what they’re paid to do. I still see no reason why the spot price of gold can’t achieve $2,000 an ounce this year, as pressure on the dollar builds and price inflation continues to be meaningful. We also can’t forget the continuing investment risk of the euro currency coming apart because of country debt defaults. All in all, it seems like there’s very little store of value around these days.