Tuesday, January 09, 2007
Tread lightly
I have a feeling this is going to be an interesting year in the stock market. Since we currently have an inverted yield curve, which means that short term interest rates are higher then long-term, the experts expect us to have a recession soon. The short term rates are higher because people feel that rates over a 10-yr period will average less then they are right now. Anyways, historically this has been a precursor to a recession, plus they call them economic cycles for a reason and we are overdue for a recession.
Another thing pointing to a recession is the high level of mergers and acquisitions. Combine two companies and you need less staff such as accounting, HR and other support areas. You also have the opportunity to clear out undesireable salaries, such as long-term middle management.
Where was I going with this.... oh yeah! Inverted yield curve should lead to a more cautious investment strategy from the big players. This usually leads to a slight downturn in the market overall. What this means to the little guy. Look for under-valued dividend paying or consistent growth stocks this year. Avoid companies that will be relying on future defense contracts due to the shift in congress. International growth is still very good, SBUX. Companies with what was the latest and greatest thing will struggle as their growth slows and their P/E shrinks, WFMI and SNDK. Companies like PG and T should be steady and even though not blockbuster returns will make you 10-15% on the year.
Another thing pointing to a recession is the high level of mergers and acquisitions. Combine two companies and you need less staff such as accounting, HR and other support areas. You also have the opportunity to clear out undesireable salaries, such as long-term middle management.
Where was I going with this.... oh yeah! Inverted yield curve should lead to a more cautious investment strategy from the big players. This usually leads to a slight downturn in the market overall. What this means to the little guy. Look for under-valued dividend paying or consistent growth stocks this year. Avoid companies that will be relying on future defense contracts due to the shift in congress. International growth is still very good, SBUX. Companies with what was the latest and greatest thing will struggle as their growth slows and their P/E shrinks, WFMI and SNDK. Companies like PG and T should be steady and even though not blockbuster returns will make you 10-15% on the year.
