European discussions and the macro economic data that has recently been released in Canada and the United States have clearly had a positive effect on the North American stock markets.
The Canadian and U.S. economies are not falling into recession – recent unemployment numbers, U.S. manufacturing data and retail sales have proven this.
In speaking with many investors over the last few months, I sense a lot of frustration in their voices.
The 2008/2009 recession is still fresh in their minds and they don’t want anything like that to happen to them again. Individuals are very leery of what is happening with the stock market today.
But I stress that this most recent stock-market decline (approximately 20% at its worst point so far) is being caused by factors that are different than the last time.
In 2008, we had a credit crisis in the United States. The U.S. banks did not even know what they owned nor were they able to attach a value to some of the assets they had.
Many individuals describe the 2008/2009 recession as a mortgage meltdown. These mortgages were then sold off in packages to investors all over the world. It quickly became an international problem.
The current fall in the stock market is based more on a crisis of confidence stemming from the sovereign debt issues in Europe.
There are countries today in Europe that cannot sustain their high debt levels and are holding many of the other larger nations hostage with their debts.
If these countries struggling with their debts default on their payments to the larger countries like France or Germany, the banking institutions in these other nations will be effected. This is the fear!
The crisis issues in Europe have finally been identified and now can be dealt with.
It is now up to European nations to take the necessary steps to insulate these larger banking institutions from defaults in the region as well as hopefully prevent any disorderly defaults at all.
Finally, we are hearing the European Union speak as one and not as 17 nations separately in dealing with the crisis at hand. Lately, the region as a whole is reacting a lot quicker to stabilize things now that they have seen how their markets have reacted so negatively over the past few months. This should give all investors hope.
At the same time, while the main European leaders have been working on their issues, the economic numbers here in North America are getting better, putting a doubt in the minds of the “bears” (negative investors) that the market will continue to fall.
This earnings season, which kicks off in the U.S. on Tuesday, will go a long way to show investors if we really are headed for a recession or if we just went through a tough soft patch.
My message to my investors has not changed over the last few months. I continue to be optimistic that the market will move higher as the year comes to a close.
There are some really good bargains out there in the stock market currently for those that are looking for growth and many of them pay a nice dividend as well. These are the companies investors should be considering today. One of the most difficult things to do is invest money when times are tough and there is negativity in many places.
However, when times are tough, that is the best time to be an investor, especially for the long term.
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.
