In 2010, Timing Will Be Everything

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

It’s a new decade and what’s certain is that we’ll likely have a lot of change in technology, industry and politics. What won’t change is investors’ will to try to profit from all the action. It’s my hope that we can achieve economic stability in the short term and economic sustainability in the long term. Slow, but steady growth is what any large economy can hope for. In addition, we need to get our fiscal house in order so we don’t get sideswiped by having too much debt. Both are achievable and, while I’m realistic about the current state of affairs, I’m optimistic that things will get better, not worse.

Ever since the financial crisis, there has been a pronounced change in consumer behavior. While the U.S. economy is based on personal consumption, I predict that attitudes will continue to migrate towards paying down debt rather than accumulating more stuff. This trend in household spending will put some braking pressure on the economy over the next several years.

I think we can pretty much count on the Federal Reserve to act in the interest of employment over and above all other factors. The central bank doesn’t seem worried about inflation and this is something we have to keep a sharp eye on. I would say, however, that interest rates can rise quite a bit and still be considered very low.

As I’ve written before in this column, I’m thinking we’re going to see Dow 11,000 in the not-too-distant future. For me, this will represent a full recovery for the stock market and, really, quite an amazing accomplishment. The stock market’s collapse during the subprime credit crisis was only a little more spectacular than its most recent recovery.

And speaking of Dow 11,000, I think the big brand-name companies are going to be the real winners this year in the stock market. Big corporations are running lean operations and any uptick in sales will translate quickly to the bottom line, without the companies having to make new investments in plants and equipment. Large-cap corporate profits are likely to be the big business news story this year, and I predict this will be pronounced in the technology sector.

The speculative end of the stock market will largely be dictated by the equity trading action in China. As in 2009, there will be great trades to be had in U.S.-listed Chinese stocks. Investors just have to remember that these stocks are 100% pure risk-capital securities.

Finally, I think the price of oil will help to keep things subdued in the auto sector. Right now, oil is trading around $80.00 a barrel and business around the world isn’t that great. One-hundred-dollar oil seems like a certainty this year. The good news for this important industry is that the timing for the “Chevy Volt” will likely be just about perfect.