Lately, it has been a difficult time for investors trying to decide which way the market will go from here. The North American stock markets are up 30-40 per cent over the last three and a half months.The most recent run-up has left many investors waiting for the other shoe to drop in the form of a predicted market pullback. If the correction does occur, will it be a big one that will re-test March lows, or just a healthy 5-10 per cent correction on the way to bigger and better things?

For
every analyst you read about that is bullish, you can easily find
one that is negative, which can be quite confusing for the average investor. However, I believe this to be a great environment for market
investing, and the fact that there is one negative person for every positive person is just another healthy sign.

No matter what you watch on television or what you read, each day the sentiment towards
investing changes. One day the bulls -- investors that are positive on
the market -- win out, the next day it is the more negative bears, making for a balance between the positive and negative thinkers.

 

What a great sign for investors.

Just when the bulls seem to be winning out, the bears weigh in with negative comments about the markets to bring investors back down to earth. When the bears are in charge, the bulls make a comeback. Equilibrium! If the majority of individuals were bullish on the markets, like in 2000 and 2007, the markets would be prime for a major pullback. However, because there is a balance between positive and negative investors today, the market just keeps rolling along.

Over
the past six months, many have made the case that we are in a
deflationary environment. These individuals believe that with
unemployment rates rising, consumers are really feeling the pinch and are not spending, driving down the prices of most goods and services.

Knowing this, the American and Canadian governments have pumped billions of dollars
into their economies to create jobs and increase the supply of money. Out of the roughly $800 billion the U.S. government has agreed to spend, only 10 per cent has been allotted, so there is a lot more money coming down the pipeline. In Canada, more projects have been started, but there are still many more to follow. With all this money being pumped into the economic system in the near future, there should be little worry about deflation.

With all this money being spent in the next few years, one could make a counter argument
for inflation. However, I believe inflationary issues are still well
off in the distance as the CPI (the index which measures inflation) has shown
no signs of rising as yet. In fact, in the U.S. year over year CPI was at its lowest rate in more than 50 years. The capacity utilization number (the percentage of people in the country that are producing) is still well below 70 per cent, and unemployment is headed towards 10 per cent. These are not numbers that lead to inflation.

Therefore, with government spending picking up the slack for
the consumer, and unemployment and capacity utilization still showing
no positive signs, the North American economy appears to be in a balanced state, which is a great environment for investing. Today, for the first time in a long while, investors can actually focus on the fundamentals of a company rather than worry about the fear and greed which has dominated the markets over the past few years. I don’t think we will have another three-month period as we have just seen anytime soon. That
was just the rebound to get the markets back to where they were last
fall.

Last fall the market fell too fast, and now the markets have gone
up too fast to match. From here, the markets grind higher. We should
see more normalized returns of one or two per cent here and there. By
the end of this year, I think most investors will make money if they
have a sound strategy in place making good investment decisions.

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.