What to Buy? What to Sell? Waiting for a Catalyst

It’s a tough stock market to make any money from. With sentiment changing almost every day, one might as well just trade index futures. In this market, the likelihood of owning a runaway winner is so small that it would really come down to blind luck.

The timing isn’t right yet to be making any bold moves in equities. You can trade around earnings news, but the returns are small. We’re likely to get more of the same from the broader market — a wide trading range around Dow 10,000. Once earnings season is over, however, the market will only have economic data to trade on and, so far, this news hasn’t been good enough.

I do feel that some sort of portfolio insurance is a useful strategy to consider over the next couple of quarters. The fact is that investor sentiment remains locked in a bearish mindset. Companies are generally saying that business is getting better, but investors don’t believe that they can outpace the economy. Revenue growth needs to be more robust for any stock market rally to sustain itself.

Right now, there are a number of attractive large-cap stocks that offer high dividends to shareholders. These stocks are the most attractive in this market on a relative basis. For speculators, you can trade the index and you can trade precious metal producers. You probably would be better off investing in real estate.

I’m not hugely bearish on stocks, but I see mediocrity in the numbers. No growth equals no growth, and this applies to revenues, earnings, and stock prices. Sitting with money in equities in a no-growth environment only works if you collect big dividends. In the absence of a bull market, equities don’t really make a lot of sense. Mind you, there isn’t a lot else to consider if you have money to put to work. Cash and bonds certainly don’t pay much.

A lot of investors are sitting on the sidelines waiting for a catalyst to take action. While there are always big risks out there, I don’t think we’re going to get a big catalyst anytime soon. Both the economy and the stock market need more time to balance themselves out.