There always seems to be a lull in stock market action in between earnings seasons. I haven’t looked into this scientifically; it’s just an observation after many years following the stock market.
With this in mind, I reiterate my view that I think a correction is coming. If we’re lucky, we’ll finish out the year before it comes.
I’d say that the number of attractive investment opportunities that are present in the current stock market is less now that it was six months ago. There is no explanation for this. It is my observation that the occurrence of great investment opportunities tends to occur in waves. Over the very near-term, I think it’s going to be more difficult to find really attractive new stocks in which to invest.
Of course, we’ve had some really good luck over the last several months, especially with China stocks and small technology opportunities. Most of the attractive China stocks have moved so high so quickly, that they are clearly in need of a rest.
So, I guess what I’m trying to say is that I’m cautious for the immediate future. Over the years, I learned to listen to my instincts about the stock market. They have been wrong, but more often now, they are right.
Very soon, the slowing economy will begin to affect large-cap companies significantly. This will have a trickle-down effect on the rest of the economy and I do think it will affect investor sentiment. This is why I don’t expect much from the stock market in 2007.
At this time, I don’t see any new investment themes that are presenting themselves. China stocks are the latest hot sector of the market. Before them, it was alternative energy. In the absence of any new catalyst for the market, the main stock market averages shouldn’t do much over the near-term.