Volatility continues on the broader North American Stock Exchanges as good corporate earnings are offset by debt worries in Europe and the United States.
Investors I have been speaking withh seem a little confused by market reaction as of late. Individuals are hearing about great corporate earnings from many top companies yet the stock market's behaviour in general has not really reflected these good earnings. North American markets seem to be paying more attention to the macro events of possible debt defaults in Europe and the U.S. The price of gold, as an example, seems to be moving up or down with every statement made by American politicians. So which is more important, the macro or the micro (company specific) events for individual investors?
In my opinion, they are both equally important. Investors that are “bottom up” (company specific) stock pickers still should keep an eye on the macro picture. Individuals that rely on macro events to design a portfolio may have a tough time if they are not doing company specific analysis. Not all company share prices in a given sector of the economy move in the same direction at the same time.
The market as of late, in general, has been reacting dramatically to the headlines of the day. I believe, that when you have an environment like this, where the market can move up and down many times in a day depending on who said what and who did what, it becomes difficult to know where to invest your money. However, the good news, in my opinion, is that this type of environment doesn’t last very long. I believe it's only a matter of time before the macro events settle down and fade away. When they do, what will be left for analysts and investors to hang their hats on will be the performance of the individual companies and so far, for the most part, earnings season has been good.
As investors, we are able to analyze corporate balance sheets, cash flow and income statements and any other piece of financial information deemed important by that individual. In most instances, there is enough information to be able to make an investment decision. However, what is uncontrollable and sometimes unpredictable are the macro events that throw investors for a loop. Some examples of these macro events can be political, weather-related or an act of terrorism, all of which are events that are difficult to predict but can change the markets profoundly. Thus if these events are so difficult to account for, my advice would be for investors to focus more on what they can control, which is the analysis of companies they are looking to invest in.
So today, with all the political events in Europe and the U.S. grabbing the headlines, what should investors be doing? In my opinion, if you are an investor looking for growth, I would remain patient and continue to buy on the dips in the market as I have said many times. Even though the political and debt issues of today seem overwhelming, I believe solutions to the problems will be eventually found. When these solutions are finally realized, all the talk will focus back on individual company earnings. On the backs of these good earnings, I believe the North American markets will move higher in the second half of the year.
If you have any questions regarding the above article or are looking for an investment advisor to help you with your portfolio, please visit my website at www.investmentadvisorgta.com. I will be glad to speak with you.
Allan Small is a Senior Investment Advisor with DWM Securities Inc., a DundeeWealth Inc. Company. This is not an official publication of DWM Securities Inc. The views expressed are those of the author alone and are not necessarily those of DWM Securities Inc.