AskCherlock » Blog Archive » Now is the Time to Invest in Stocks!

Politics-Opinions-Life Issues-Impact!

Now is the Time to Invest in Stocks!

4 March 2010 5 Comments

As the first week in March comes to an end, investors in the U.S. stock market are still nervously scratching their heads and wondering what direction the U.S. economy will take. Some signs are positive, such as a 3.7% increase in the all-important retail sales figures. It appears that consumers have continued to rely on the discount chains for their “everyday” purchases, but also have begun to trickle back to the higher-end retail establishments. This trend, if it continues, may signal a greater level of consumer confidence. On the other hand, pending home sales nosed-dived from the prior month, indicating that the consumer real estate market is still far from recovery. This trend, if it continues, may signal a decreasing level of consumer confidence. So, “round and round and round she goes”; where the economy is headed, nobody knows! One thing is for sure, every bit of economic data, both large and small, is analyzed to death by wary investors, and every day the result is billions of dollars put into the stock market or taken out. It is no wonder that many Americans, whose life savings and 401-k retirement plans are invested in stocks, are worried sick about the future.

Most economists, who are familiar with the dynamics of the business cycle, advise that the U.S. economy will continue to slowly improve as America and the other major economies of the world shake off the effects of the deepest recession experienced since the 1930′s. Although investors will continue to react and over-react to short term economic data, the intermediate and long term trends should be positive, and stock prices will steadily rise over time. The rise in stock prices will be mainly driven by higher levels of corporate earnings, combined with a huge cash infusions that have fled from the lower yielding, money market investments. Those investors who decide to continue taking refuge in money market instruments, including government bonds, will risk missing out on tremendous capital gains when the stock market registers between 10% and 15% gains before the end of 2010.

Contrary to popular opinion, the positive or negative effects of U.S. government meddling in the private sector will have little impact on the American or the world economy. Also, over the next few years it is unlikely that the inevitable inflation caused by a mountain of U.S. government debt will have taken hold. At least for 2010, stocks will be the best investment vehicle to take advantage of improving economic conditions. After that, all bets are off!

—Rich

5 Comments »

Project Savior said:

I have to give full disclosure before commenting, I was a securities broker. I no longer have any gain or loss if someone buys stocks.
That being said, The time to buy was last year, when stocks were being issued for the value of the paper they printed on (ok they print them anymore). But if you do have money to invest here is a few tips, (Personal not Professional). Research the damn company you are investing in. Microsoft, Apple, GM (still) companies that actually make things. Despite all the profits made by hedge funds that invest in imaginary money making schemes, the companies that actually make things will continue to grow slow and steady if there is a market.
Invest in green tech. All other industrial countries are scrambling to break their oil addiction. If the US doesn’t buy green products the rest of the world will.
That is my PERSONAL opinion. This is not Professional advise, I don’t work in that industry any longer.

# 4 March 2010 at 10:17 pm

Project Savior said:

Sorry I meant “ok they don’t print them anymore”

# 4 March 2010 at 10:18 pm

VH said:

I have to say that I do agree with you on being bullish on stocks in the short run. There are positive leading indicators: the Non-Manufacturing Index is the highest it has been since 2007, vehicle sales are up, and even the manufacturing sector expanded in February. Also, it is very likely that corporations will continue to get more productivity from their current work forces without new hiring for 2010 through increased efficiency.

Heck, the stock market may even rally big as investors try to get some profit before the coming tax increases in 2011.

Of course, The Fed is doing its part in keeping interest rates very low in an attempt to prevent deflating prices but eventually it will have to raise rates later this year and that’s when things will get ugly…again. Remember, it was mid-summer 2007 when the Fed started raising rates that started the housing slide into oblivion.

# 5 March 2010 at 2:12 am

admin (author) said:

Project Savior,
Thanks for your insightful comments. Over the short run, I think that the Dow Jones Industrial Average will gain another 10% before reaching a new equilibrium. After that, the equities market may have to compete with rising interest rates in the money market due to inflation.

# 5 March 2010 at 9:43 am

admin (author) said:

VH,
I totally agree with you. As long as interest rates stay low investors will continue to move into stocks to try to get some kind of decent yield. Once inflation hits the U.S. economy, as it almost surely will, all bets are off.

# 5 March 2010 at 9:48 am