Daily Gains Letter

The Final Countdown: The Stock Market’s on Its Final Leg to Recovery

By for Daily Gains Letter |

070313_DL_clarkSkepticism is very high among individual investors. Institutional investors who run buy-and-hold mutual funds don’t need to be as worried; they get paid to buy stocks. The stock market’s run makes total sense in that the Federal Reserve continues to promise low interest rates and continues to increase the money supply, while revenues and earnings from corporations are growing modestly.

Other than real estate, there is no other place for an investor to put his or her money to generate income above the inflation rate. So the stock market is likely to keep ticking higher over the near-term. Now, all the power is with corporations.

I believe we’re on the final leg of the bull market recovery from the March 2009 low. All investors want to see is revenue growth and they will keep buying stocks. Growth is the name of the game as corporations have actually done a great job keeping a lid on costs. I expect more new announcements regarding share buybacks and rising dividends this upcoming earnings season.

The toughest problem facing the Main Street economy is employment conditions. But even though the Federal Reserve has catered an extravagant menu of stimulus to Wall Street and corporations, large companies just don’t want to invest in new plant, equipment, or employees. The cash hoarding will continue; the beneficiaries are stock market investors, not workers.

In the final leg of this stock market recovery, there are some attractive buys out there. One particular investment theme that I believe in is that corporations will begin to open their wallets, but the cash won’t be spent on new employees; it will go to information technology (IT) instead.

Corporations are already spending on new IT processes that help efficiency, and the trend is only going to continue. Those large-cap technology corporations that provide enterprise IT services should do exceedingly well over the next several years.

The economic backdrop we’re in is a real pickle, and getting out of this game is going to be very difficult. Nowadays, the business cycle isn’t allowed to take its own course. The economic extremes are now even more pronounced due to the actions of the Federal Reserve and inactions of politicians. The system serves corporations and money, not honest individuals who just want a regular middle-class life.

Of course, investing has always been about how you play the game. So much is beyond your control as an individual looking forward to retirement. You can’t control policymakers, the stock market, the money supply, interest rates, or price inflation. All you can do is plan your investments, knowing what the real risks are in the marketplace.

This is the final leg of the stock market’s recovery from the subprime mortgage–induced financial crisis. The stock market is due for a pronounced correction, but whether this correction is a good buying opportunity remains to be seen.

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