Monday, May 23, 2016

Static equity market leaves investors guessing

Recent days in the equity market have seen a drop off in volatility and volume.  That will not continue and there will be a catalyst for more activity soon, but in what direction?  Given the lack of alternatives for income in the credit markets, equities will continue to be relatively attractive as a source of dividends and as opportunities for capital appreciation are buoyed by the continued need for a place to invest.

For now, real trading can begin.  The earnings season is finally over and all of the pundit sniping and attempts to draw short term conclusions after every report are done with for now.  Commentators will need to have something more substantive to talk about as they are not being fed new earnings reports every day to opine on off the top of their heads.  It is also increasingly clear that the Fed wants to raise rates soon, and barring some exogenous event of consequence they will do so.  No one will be blindsided by a rate hike.  No one will be blindsided by a major company or sector of the market reporting unexpected poor results.  We are in the clear.  "Real trading can begin".

Overall the U.S. equity market is not a bargain.  In many areas it appears to be priced within reason. At the same time there are no areas of the market that are in bubble territory, at least from this perspective.  That is especially the case as biotech has collapsed to earth in the last six months.  Areas that are ripe for some capital appreciation  now are banks, transports, and, as just mentioned, biotechs.

Like Schwab some months ago, Fidelity is now touting international stocks as an opportunity.  It's a big world and there will always be some country or area that outperforms but finding that benefit safely is not so easy.  Using discretionary mutual funds is what many suggest, but it is not clear that there is any consistent index beating strategy out there and fees for mutual funds that invest internationally are generally high.  That means looking for indexed ETF's or funds for an area or country with the wind behind its back, and that will be looked at here.  Since so many investments in corporates here are in ones with global operations, this does not feel like an urgent chore.

Money needs a place to go.  The thought here is that stocks will rise in the coming months, summer swoon thoughts put aside.  If there is a market reset for some reason, it will be followed soon by money coming back in at better prices.  If the market stays this boring, maybe that's what is needed.


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