Second quarter results are coming in each business day and overall they have been fantastic. Most of the companies reporting second quarter earnings on the S&P 500 and Toronto Stock Exchange have beaten analyst’s expectations and catapulted the North American indices higher.
Many analysts predicted this rally off the March lows could not be sustained and that we were only experiencing a bear market rally, but these latest corporate numbers prove that such analysts continue to be wrong.
Overall, the economic climate has definitely improved and we continue to see more positive signs all the time. The best indicator that reveals this is how investors are thinking. Four months ago, many investors were wondering if the North American markets would even be around in a year, let alone when they would begin to thrive again.
Many are seeing signs the economy may be turning the corner, and have gone from survival mode to an economy showing positive signs as things have gone from "less bad" to "good."
Where economic conditions are not stabilizing, they are improving. Last week, the Bank of Canada even stated that they believed the recession is over and that Canada would show positive growth for the third quarter of this year.
Some companies reporting results for this past quarter indicated either a decrease in sales, revenue, or even both, but were able to beat expectations through cost cutting.
Many businesses acted quickly when they saw the recession coming by laying off workers and reducing inventory. Some of these businesses are still carrying very low levels of inventory which will have to be replenished as consumers get back on their feet. These companies will happily begin to order new products, which in turn will allow manufacturers to rehire workers and begin the cycle again.
A perfect example of this is the automotive industry — low inventories, billions of dollars on the sidelines just waiting to find a home and a $787-billion dollar stimulus package that is only 15 per cent spent. These are the positives we have to look forward to.
As investors, we need to continue to invest to take advantage of the opportunities that are in front of us. We need to still be mindful of the past but look to the investments of the future. Many companies will reach their previous highs again and even surpass them at some point.
Investors need to research or have an advisor guide you as to what investments are good in this environment. Not all investments will be profitable, so individuals must develop an investment strategy and stick to it. If it is good, it will allow you to reach the goals that you have set for yourself.