On the continuing theme of dividend-paying large-cap companies, it’s pretty clear that institutional investors have been migrating towards these stocks because they don’t expect a lot of economic growth over the near term. In fact, we could get a major slowdown in the global economy in the near future as stimulus packages are withdrawn and higher commodity prices take their toll on demand.

The economic news lately reveals a mixed performance for industry and in the macroeconomic numbers like employment and housing prices. Institutional investors want dividends simply because they don’t expect much in the way of top-line growth. It’s the natural thing to do when interest rates are low, bonds aren’t attractive, and cash pays virtually nothing. Investors with money to spend have to put it somewhere to beat the rate of inflation and you can see the significant buying that’s been going on in dividend-paying large-caps.

I don’t necessarily see major trouble ahead for stocks given the current fundamentals, but it is difficult to imagine a major advance in share prices when there isn’t robust growth in the underlying economy. Instead of a well-deserved correction in share prices, it’s looking more to me like we’re in for a longer period of consolidation in the main stock market indices. There’s some waffling going on in capital markets, as investors don’t see a near-term trend. So, they buy yield if there’s nothing else going on.

As I’ve been writing for quite a while now, the price pullback in equities and particularly in commodities is a healthy development for the long-run outlook of capital markets. There was speculative excess in gold prices, silver prices and oil prices, and equities have been trending higher since last summer. A little breather, even if it takes a couple of quarters, isn’t as bad as a bubble that bursts.

Right now I don’t see a major need for equity investors to be making any new bold moves with new positions. There are always trades out there, but there isn’t much of a tailwind from the broader market. Investing in gold is a sectoral play that I continue to believe in for the next several years. The commodity price cycle is taking a break; it isn’t over.

As for the rest of the broader market, I’m still following the railroad stocks as my best indicator.