The Barrett Edge

Are You Getting Dizzy

Investors, hold on tight: We are constantly hearing negative Financial news (i.e high unemployment, inflation, tension in the middle east, the poor housing market…  Or — wait! — the clearing clouds over Europe point to brighter days ahead. And look at all those tech IPOs that are resulting in Fund Managers begging for tech college students to take their money. Surely that’s a sign of expansion — or is it just another bubble?!

All these mixed signals are enough to make even the savviest investors dizzy. After a three-year bull run, the stock market lately seems stuck at a crossroads, not clearly headed up, nor clearly headed for the double-dip some have predicted. The bond market hasn’t crashed — but neither has the housing market come back. As a result, investors have embraced a wide range of strategies.  

Some investors have opted for bond funds, which attracted almost five dollars for every dollar that went into equity funds during the second quarter, according to EPFR Global, a fund-data provider. At the same time, the IPO market is hotter than its been in years and emerging markets funds are starting to gather significant investor cash for the first time since the end of 2010.

What’s going on? Most markets have their bulls and their bears, but typically a consensus is built. Not so this time around. Market bears certainly have plenty of ammo: The unemployment rate rose to 9.2% in June and shows no signs of improving soon. Debt worries are clouding Europe’s outlook, Japan is still reeling from its earthquake disaster and the U.S. has yet to agree on how to handle its mounting pile of I.O.U.s. 

At the same time, there are reasons to be optimistic. Manufacturing in the U.S. has picked up. Commodity prices have fallen from their peaks, meaning lower costs for companies. And perhaps most importantly, analysts are predicting that companies are expected to report strong third-quarter earnings and increase their dividends.

But for bulls and bears alike there are smart strategies for shaky times. Some will pay off quickly if the market continues to rise; others offer downside protection if it goes the other way. And none of them are market-timing bets yet all can offer strong returns over the long haul for investors that are willing to hold on. I would suggest however to caution and make certain that you understand the company’s product and quality of earnings and never underestimate managements abilities and track record before making an investment.

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