The Best Thing That Can Happen to the Market Right Now

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

The economic reality is certainly catching up with the stock market and investors aren’t sure how to proceed. It was only a matter of time before the Main Street reality caught up to Wall Street speculators. It’s going to be a choppy road ahead, as we get into third-quarter earnings.

I’m still very wary about investors taking on new positions in this market at this time. Most of the good opportunities have already gone up in price. If anything, I think speculators should consider taking some money off the table right now. Nobody ever went wrong taking profits.

While the economic news is certainly not great, I wouldn’t be a buyer of stocks right now for two reasons: one, they’ve already gone up in value; and two, it doesn’t make a lot of sense investing in a company just before it’s about to report its earnings. That’s a super-high-risk investment strategy that’s just guesswork.

The stock market’s been due for a rest for quite some time. In the past, however, a period of consolidation has only lasted about a week. This kind of trading action is illustrative of a bull market, but, in the current case, it isn’t healthy. In my view, the stock market needs a substantive break from its recent run. I don’t know if it will play out, but without one, investment risk just goes up.

It will be very interesting to see what happens to the different sectors of the market this earnings season. I keep thinking about the large-cap technology sector and whether these companies can exceed consensus estimates. If they do, I think that this will be the catalyst the broader market needs to move higher. Everyone expects the manufacturing sector to do poorly, and we get may a few surprises to the upside with some of these companies. Finally, investors will be looking to the big conglomerates to see what’s happening to their operations in the global marketplace. If big, diversified conglomerates put in a decent performance this third quarter, then I think that investors will jump on the bandwagon once again.

So, if we get a selloff in the broader market over the near term (which would be a healthy development), then a solid new entry point should present itself for investors. We have to wait and see. The best thing that can happen to the long-run health of the stock market is a substantive pullback in share prices right now.