Cautious Taking on New Positions

Over the past two months, the broad stock market averages have done well. From my perspective, the stock market’s done exceedingly well. Considering that we’ve experienced high oil prices, war, inflation, and a general disinterest from the investment community, I’m quite surprised that stock market indices have gone up at all.

With this in mind, I can’t help but feel a little nervous about the broader market right now. It isn’t so much that I’m expecting a correction or any sustained down period for stock prices, only a sense that stock prices may be without direction over the near- term.

Perhaps the recent strength in stocks is a precursor to a broad market rally for the fourth quarter. This is the stock market’s traditionally strong period.

I’m not sure where the stock market is going to go over the coming months, but I do know that I would be very cautious taking on new positions. There’s no shortage of attractive investment opportunities out there, but I just can’t see stock prices taking off in an inflationary environment.

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As I mentioned before, recent economic data supports a slowing economy with the beginnings of some control on inflation. It’s still too early to tell whether inflation expectations will lessen so I think it’s reasonable to assume that the stock market won’t do much over the near-term.

Accordingly, I’d be sitting on the sidelines. Without some new catalyst, the market is destined for lackluster action going forward. I’m not sure what this catalyst might be, but I am waiting for it. In the absence of its creation, I’d wait and watch for new opportunities to present themselves.

This is what George Soros’ partner did while running the world famous hedge-fund known as the Quantum Fund. Jim Rogers has always said that the reason for his success in speculating in the financial markets is that he had the patience to wait and watch until only the best trading opportunities presented themselves. In the absence of only the most attractive investment opportunities, he sat on the sidelines.