Institutional Investors Are
Buying & Rightly So

No doubt this is an equity market that wants to go higher. The market is due for a correction; it just experienced a small consolidation; but no matter what the economic analysis, institutional investors are buying. They are buyers right now because the earnings outlook is great, interest rates are low, and there isn’t anything else to invest in that has above-average return potential.No doubt this is an equity market that wants to go higher. The market is due for a correction; it just experienced a small consolidation; but no matter what the economic analysis, institutional investors are buying. They are buyers right now because the earnings outlook is great, interest rates are low, and there isn’t anything else to invest in that has above-average return potential.

The S&P 500 Index seems to have broken through the 1,300 level, which has been a barrier for a while (though it could still retreat). With the number of earnings preannouncements low, 1,500 seems to me like a cakewalk for the index. My money is on rising stock prices, not the other way around.

The good news is that, even at 1,500, the S&P 500 Index won’t be expensively priced. I would say it would be fairly valued and this bodes well for the rest of the year. As we’ve seen recently, the economic data aren’t uniform. Revised fourth-quarter gross domestic product numbers were solid, yet February orders for durable goods were below expectations. I think this mixed trend in economic news will be with us for quite a while. I don’t see us having runaway economic growth anytime soon and, while things may be slow at the Main Street level, Wall Street will continue to bet on a brighter future. The present doesn’t matter on Wall Street—only the past and the future.

Stock picking in this market is also a choppy affair and, just like with the economic news of the day, some companies are doing better than others. It’s difficult to imagine an across-the-board acceleration in business conditions. As an investor, you really need a basket of special situation stocks in order to beat the market.

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As we’ve been saying consistently for a number of years now, investing in gold remains a good idea, even if you’re a new investor. A number of smaller gold mining companies recently saw their stock prices accelerate significantly after reporting excellent financial growth in the fourth quarter. While the returns might be incremental, as so many gold stocks have already gone up, there is still plenty of good trading action in this sector if you like to speculate in gold shares. I still wouldn’t have a balanced equity portfolio without holding at least one gold producer. Global capital markets continue to be behind gold not only as an investment, but increasingly, as a store of value over some currencies as well.

The best stock picker I follow, Jim Rogers, figures that a correction is probable in stocks and commodities. But he always adds that, when it happens, it will be a good buying opportunity. He figures the commodity price cycle has another 15 years or more to play out.