The recent ten per cent decline of the Toronto Stock
Market has investors and analysts nervous once again, their confidence still shaky from the effects of the current recession.

Investors are quick to
point out all the issues that could drive the market lower over the summer
months. As in March, most investors are not focusing on the opportunities which
are in front of them, choosing instead to dwell on the problems of the past. This
decline should not be looked at as the beginning of another major pullback, but
as an opportunity to purchase some good quality investments at a discount. If
you are an investor that did not take advantage of the last sharp rebound in
the markets, this is another chance to enter the market again.


It seems like just days ago when the talk
was about inflation due to too much money being pumped into the system and a market that was moving up too quickly. Many economists were concerned about the federal reserve's lack of commentary with respect to pulling
money out of the economy.

Oh how fast the talk can change.

Today, just a few weeks later, after indicators revealed very few inflationary pressures, economists are now
wondering if there should be a second stimulus to help fight the recession and
provide jobs to get consumers spending again.
Listening to these analysts and economists makes one wonder if their job is to
only point out the negatives in the economy. If the stimulus works and jobs are
created, there will be inflation. If people save their money and pay down debt
instead of spending, unemployment will remain high and the recession will be prolonged. It seems like there is no
way to be positive.

The current market correction is being led
by a pullback in oil and commodities, both of which are strongly
tied to the growth of the economy. With only 10 to 15 per cent of the $787-billion U.S.
stimulus package spent so far, how can anyone come to the conclusion that the
stimulus has not and will not be successful? Discussing a second stimulus when the first one
has not even been a quarter spent is absurd.

The upcoming week will be a big one for
corporate earnings. Many of the largest banks in America will report second
quarter results, and the consensus amongst analysts is mixed as to how well these
banks performed in the second quarter. One thing is for certain -- the revival of
the U.S. economy will be dependent on how fast the banking system can get back
to firing on all cylinders.

One of the most heard criticisms of this
market is that it has come too far, too fast. Well, perhaps the market last fall
fell too fast as well, meaning the most recent run-up is just
making up for the deep decline the markets experienced in September and
October, and then repeated in March. What goes down that fast usually
rises that fast as well.

Now the real test begins in trying to make back the
last 30 per cent decline the market endured. I believe it will happen, but at a much
slower pace. We will see the market grind higher with small percentage gains
scattered throughout the next 18 months. Those that stay the course and try to
take advantage of this market and remain invested will be happy
that they did. The others will be left wondering why they did not invest to
take advantage of the opportunity for a second time.

I still believe that the sectors of the
market that present the greatest opportunity are financials, infrastructure and
oil. With oil stocks falling in value due to a 20 per cent decline in the price of a barrel, this sector is attractive once again. The financial sector not only
offers you good quality companies that will grow over time, but some of these
companies even pay you a great dividend to wait for the growth to happen as
well. Lastly, with much of the stimulus money being spent around the world on
infrastructure, it is only a matter of time before some of the largest
companies in the infrastructure space start to show tremendous profits from it..

Always remember, investing is marathon and
not a sprint. If you own good companies, don’t panic if the price falls five or
10 per cent. If the fundamentals have not changed, buy more instead of selling. You
will be happy that you did.

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 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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