Equities hang tough

Sure it's a fact. Equities have been sliding some over the past six weeks, but all things considered they could also be viewed as resilient and as presenting modest opportunities.  With the lack of a Congressional agreement on a budget and a debt ceiling calamity, however unlikely, still looming, the equity or bond markets have still not been anyone's biggest worry.  That can change in a heartbeat, but for now most equity investors are simply taking some gains earned earlier in the year and giving back a little.  Bond investors, apart from parts of the high yield show, are in a slow but certain flight that is picking up steam.  Regardless of the outcome of the debt ceiling issue, global rates for U.S. debt have already been damaged and a rise in required returns is in the cards.

From this completely non-networked intuitive perspective, it appears that investors are taking partial gains on stocks that have done particularly well in order to shore up cash positions and overall liquidity, but they are also nipping at stocks with some potential that had already been down earlier in the year, have slipped more, and look like they would have meaningful gains if no disaster is by any chance in the cards.   They are also scouring the market for merger events that could yield a quick gain, and there certainly have been some.

The net result is that investors are raising some liquidity in the aggregate but also looking for opportunities at the same time.  The relevant question is where are they supposed to put liquidity, meaning cash raised, in any place with the potential for a meaningful or even barely adequate return.  Real estate has already had somewhat of a modest run and commodities are somewhat stagnant as China, India, Brazil and other emerged or emerging markets are working through some challenges that slow their growth.

For those with the connection to really good research, or good luck, certain health care stocks should offer significant opportunity.  Financial stocks are surviving Obama administration attacks on multiple fronts, but they will play a meaningful part in any recovery.  The auto companies do not necessarily represent any gold mine(obviously excepting Tesla's hype), but they are indicative of a slow but almost sure recovery in some U.S. manufacturing.  So do certain energy, materials, and rail names.  Finding those names is not easy for any investor for the most part, and certainly not for the retail investor.  Despite so many projections to the contrary by securities analysts over 2013, small caps indexes continue to perform well, maybe better than well.

Infrastructure plays should offer long term opportunity in the U.S., but for those companies with strong multinational networks the reward could come sooner.  The crowded investment of choice over the last two years has been dividend paying stocks, and it has not been a bad bet.  They offer yield and because of the demand for the names with strong balance sheets they have also offered capital appreciation.  This will not go on forever, as dividends are clearly taxable and the best companies are savvy enough to find ways to profitably reinvest their earnings into even more business opportunities.  Just look at Amazon.

So now it's wait and see time.  Will rationality prevail or will harsh political antagonism pull the plug on everything.  It's difficult to see corporate America letting that happen, but God only knows these days.