Market Strategy Thoughts

I have several client meetings approaching in the next few weeks, so I have been getting some applying for grants the marketplaces collectively. Warning: This an extended post! First, generally, I believe the marketplaces can move higher. There seem to be too many people looking forward to a substantial “market correction” or perhaps a larger downturn. It seems to me that markets get smacked when nobody is expecting it.

Now, it seems the papers and blogs are filled with bearish and dire predictions. Among the big reasons I remain on the bullish side is the extremely low degree of interest rates. For me, the only really unattractive investment area in the publicly-traded markets today is within the shorter-maturity bond area – both taxable and tax-exempts. If you plunk a big part of your retirement property into brief maturity bonds, it is a wager on a market collapse really. Again, while I could be wrong, I don’t see the wild-eye optimism or outrageous valuations that typically precede market downturn.

Also, I think there will be a great deal of traders who bought bonds a couple of years ago that are going to experience “sticker surprise” when those bonds mature. Yields were a great deal higher a couple of years back, and it will be difficult to replace those yields without sacrificing credit quality. For example, Greece today issued bonds around 6.5% yields, though Greece is a fiscal catastrophe waiting to occur even. Frankly, unless the Greek government can find out a miracle, there reaches least a substantial likelihood of default (in the end, Argentina seems to default every decade, and it never seems to have trouble getting money again).

Which all leads back again to the stock market. As I mentioned, there remains a huge degree of client skepticism about the prospects for the stock market. 50% from this past year. Moreover, oftentimes the normal stock of a company is yielding significantly more than the bonds of the same company. Energy – the integrated essential oil sector especially, which is trading a single-digit P/Es and offer good dividend yields.

However, I like almost every other companies here as well also, although I think the natural gas names could take longer to “work” than the essential oil related names. I’d be considered a buyer of Exxon; Chevron; Occidental Petroleum; Apache; Devon;, and Total. Consumer staples – this group relatively has lagged, as the market rally of the past year was centered on lower quality, higher beta names. Still, for a listless market, titles like Procter & Gamble; Smucker’s; Sysco;, and Colgate could here be interested in. Utilities – this area has significantly underperformed the marketplace mostly due to weak demand. Still, the group generally offers good dividend yields, and low expectations.

If the currency markets continue to go sideways, we might see this group start acting better. I like the integrated names here, like Exelon. Consumer Discretionary – consumers continue steadily to spend, even though the overall debt burden inside our economy remains high. I missed the move in smaller retailers this past year, but I don’t want to chase them now. I’d look at stocks and shares like Disney; Marriott; Nike; McDonald’s;, and Kohl’s. Financials – a tough group, since I believe that lots of of the top debt issues that created the large crisis a few years ago stick to the books of several banks.

Still, the Fed and Treasury are determining to nurse the banks back to health, and I would not bet against them. Also, the brokers are making lots of money, with less competition, wider spreads, a lot of new issuance, and a pick-up in M&A activity. I have been using the financial SPDR (ticker: XLF) as the lower-risk way to play the group.

However, easily had to buy stocks, I would go with titles like Goldman; JP Morgan; Ace; Chubb; Travelers; and State Street. Industrials- I think this group could surprise on the upside, as traders are missing the huge revenue leverage that lots of companies have had the opportunity to determine by trimming costs and more efficient use of the internet. Rail and trucking amounts have been increasing, as the overall economy improves, and everything the “very good news” is not, I really believe, built in just yet.

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Also, I think that defense stocks and shares could amaze on the benefit, as it would appear that the National government is already focused on increasing shelling out for hardware. Health Care – another tricky area. Names I’d buy now would be Merck; Cerner; Johnson&Johnson; Novartis; Stryker;, and Pfizer maybe. Materials – in a deflationary environment, this combined group should suffer, but I don’t believe it will.

Demand from Asia and the Middle East remains strong, and though a few of the commodities might suffer even, I believe metals like copper (which China continues to consume rapidly as it builds) will continue to prosper. I am not, by the way, an enthusiast of gold – yellow metal really shines (pardon the pun) when there is certainly concern about inflation or currency depreciation, but I don’t believe that either are in the credit cards.