Perusing the stock market for opportunities, I’m discovering some very good values in the marketplace. Economic conditions aren’t the rosiest, as you know, but there are a lot of quality businesses out there that just went on sale. Also useful, dividend yields have gone up with the market’s recent correction. I believe in the attractiveness of dividends, even when dealing with smaller, higher-growth companies. There’s nothing like a stream of quarterly income to make you feel better about your stock market holdings. What’s old is new again and dividends are back in style.
While I continue to be a gold stock bull, I wouldn’t be surprised if the spot price and gold shares experienced a well-deserved correction from their recent run. We’ve had several shocks to investor confidence and the damage is now completely understood by the marketplace.
The spot price of oil, which seems highly correlated to the trading action in stocks, is now at a level that I view as highly stimulative. It does take quite a bit of time for the retail price of gasoline to follow lower oil prices, but this is what the economy needs—cheap gas and cheap rates for mortgages. That’s the best way to stimulate the American economy, period.
The sovereign debt crisis isn’t over and neither are the risks to the domestic economy. I see the broader market trading in a range until third-quarter earnings season, which should once again be robust. The combination of cheap money, strong cost controls, and a weaker dollar is no doubt padding the earnings picture for a lot of corporations. This year, we’re likely to see impressive earnings growth performance. The market is now starting to look beyond the third and fourth quarters and is unsure whether it should bet on the future. The lack of visibility is keeping the stock market in the doldrums.
It’s going to take a lot of positive news to get the stock market to advance in any meaningful manner this year. This is why dividend payments are so important. All the major stock market indices have broken their moving averages and this is technically significant. The Dow Jones Transportation Average has lost about 20% from its yearly high set in early July. This is a big hurdle to overcome—just to get back to the way things were.
We’re in a period of extended revaluation of assets and reevaluation of expectations. The age of austerity is here for the next several years.