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As stimulus money flows, the infrastructure sector stands to grow

Historically, the month of September tends to be a negative month forthe North American markets, which is one of the reasons many analyststhought the stock market would run out of steam after rising so far, sofast.

Historically, the month of September tends to be a negative month for the North American markets, which is one of the reasons many analysts thought the stock market would run out of steam after rising so far, so fast. However, we're halfway through the month and the pullback has yet to materialize.

It seems like most economic indicators that have been released in the U.S. and Canada have been positive. The housing market seems to be improving, manufacturing is showing signs of revival, unemployment remains high but is improving, and the confidence of the U.S. consumer -- which has been the engine that has driven the North American economy for many years -- has been on the rise as well. These are the facts many investors are looking at as they continue to drive the market higher, appearing to forget the issues that still remain, such as the high unemployment rate, a weak U.S. dollar and a credit market that is still not back to normal levels.

Investors are also buying when the market falls, not selling. This mentality of “buying on the dips” is keeping the stock market from experiencing the September fall that many had predicted. This is why trying to time this market by selling out before a predicted pullback is a mistake. An individual can never time the market, and it would be foolish to try, especially in a year full of surprises.

Many sectors of the economy have led the rally at one time or another. At times it was the financial sector, then the oil sector, only to have leadership transferred later to technology and now metals, particularly gold.

Gold has again reached its highest levels with the U.S. dollar at a low point versus the yen, the euro and the Canadian dollar. Gold is purchased in U.S. dollars, so when the currency is weak, an investor can purchase more gold at a lesser price, driving up the price of the precious metal. For this reason, gold is used by most investors as a hedge against the greenback. With the U.S government printing so much money over the past six months, analysts believe at some point there may be an inflationary problem. Gold and other hard assets such as oil act as a hedge against inflation as well, another reason to own the metal.

As an advisor, I think everyone should have a small piece of gold in their portfolio for diversification purposes. However, I am very weary of gold as an investment because it is very hard to predict its price movements. The main reason I believe this is because the price of gold does not rise or fall based on its own supply and demand like other metals and commodities do. In fact, most countries have been sellers of gold, not buyers. Gold goes higher or lower based on fear and the U.S dollar. If you own more than an appropriate amount of gold in your portfolio, this means that you are betting not just against the U.S dollar, but the U.S economy as a whole. In my opinion, anyone that is thinking in these terms will be proven wrong. I have full faith in the U.S Treasury and Federal Reserve to get the United States back on its feet without causing inflation.

One sector I believe investors can still do well in, although it has not gone up as yet relative to other sectors, is infrastructure. It has taken so long in both Canada and in the United States for stimulus money to get to where it is supposed to go that many are predicting it won't be until the fourth quarter of this year and the first quarter of next year that we start to experience the positive effects the stimulus programs were supposed to create. Therefore, many of the engineering firms and construction companies should start to see noticeable growth directly related to stimulus during that time. Some of the top companies in the infrastructure sector have already confirmed that things are just starting to get better.

Therefore, I recommend investors consider this sector -- if they can handle the risk level -- for their portfolio today. I believe the infrastructure sector should be part of an investor’s strategy of capitalizing on where the growth in the economy will take place moving forward.

If you have any questions regarding the above article or are
looking for an Investment Advisor to help you with your portfolio,
please send me an email at asmall@dundeesecurities.com. I will be glad
to speak with you.

Allan Small is an Investment Advisor with
Dundee Securities Corporation, a DundeeWealth Inc. Company. This is not
an official publication of Dundee Securities and the author is not a
Dundee Securities analyst. The views expressed are those of the author
alone, and are not necessarily those of Dundee Securities
or Metro Canada.

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