Stocks To Buy Now: Summer Swoon
Equals Buying Opportunity?
The Dynamic Wealth Report
June 13, 2011
by Robert Morris, Editor
It's official. The stock market summer swoon has begun. Keep reading to
find out if it's time to bail out, or if we're on the cusp of a
tremendous buying opportunity.
Another week, another lower close...
Last week marked the sixth straight down week for the major US stock
market indices. That's the longest weekly losing streak in the S&P 500
since 2008. And you'd have to go back to October 2002 to find a similar
down period in the Dow.
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No doubt about it, the markets are dropping faster than
Congressman Anthony Weiner's pants during a Twitter post. Ok, maybe
they're not dropping quite that quickly.
But you get the point.
Since the S&P 500 peaked on April 29th, the index has given up 6.8% of
its value. And the Dow has retreated by a similar 6.7%. That may not
sound too bad when put in percentage terms.
But try this on for size... over the same time period, US stocks have
lost a whopping $1 TRILLION in market value. No wonder investors are
getting skittish.
What's behind all the selling?
A good number of investors are worried recent economic data suggests the
US economy is slipping into a double-dip recession. In case you missed
it, several important economic numbers came in worse than expected over
the past few weeks.
It all started with weaker than expected April housing data.
New home construction plunged by nearly 24% from the prior year. New
building permits, a gauge of future construction, dropped 4% from March
levels. And topping it off, the S&P/Case Shiller Index of real estate
prices in 20 major cities dropped below the lows hit during the worst of
the financial crisis.
These disturbing numbers were followed by surprisingly tepid consumer
spending figures for April.
Consumer spending rose just 0.4% in April, less than the downwardly
revised 0.5% increase in March. And when adjusted for inflation,
spending rose by only 0.1% for the second month in a row. That's bad
news for an economy where 70% of growth is driven by consumer spending.
Another sign of growing economic weakness came from the May ISM report
on manufacturing.
The good news is manufacturing activity expanded in May for the 22nd
consecutive month. The bad news is manufacturing activity plunged 6.9
percentage points from April's levels. The big month-to-month drop has
many worried we're headed for a recession.
And finally, the icing on the cake was the shockingly bad May
unemployment numbers.
US employers added just 54,000 jobs during the month. It was the
smallest increase in eight months. Analysts had been expecting the
economy to add 150,000 jobs. What's more, the unemployment rate actually
rose from 9% to 9.1%.
With economic data like this, it's no wonder investors are worried the
US economic recovery is stalling. And it's no surprise many investors
are lightening up on stocks.
But are these fears realistic, or are investors merely overreacting?
Based on a recent Bloomberg survey of 67 economists, I'd say investors
are overreacting.
According to these economic experts, the slowdown in consumer spending
and employment is just temporary. Moreover, they expect US economic
growth will rebound in the second half of 2011.
Here's why...
"Rising exports, stable fuel prices, record levels of cash in company
coffers, and easier lending rules will be enough to overcome the damage
done by one-time events like poor weather and the disaster in Japan..." As a result, economic growth is expected to jump from 2.3% in the second
quarter to 3.2% from now through December.
What's more, economists are expecting a big increase in corporate
spending. One of the primary reasons for the recent slowdown is
companies hoarding cash like Ebenezer Scrooge. At the end of the first
quarter, companies had a record $1.91 trillion in cash and other liquid
assets.
The experts say companies will start using this money to ratchet up
capital investment and hiring later this year.
And don't forget the power of consumer spending.
After increasing at just a 2.1% rate in the second quarter, consumer
spending is expected to rise by 2.95% in the second half of 2011. Of
course, an uptick in consumer spending of this magnitude will provide a
nice boost to GDP growth.
Last but not least, the recent slowdown should push out the Fed's
timetable for raising interest rates. Instead of boosting rates in the
first quarter of 2012 as many expected, the Fed probably won't raise
rates until the second quarter at the earliest.
Based on this bullish outlook for the economy, I'm convinced the recent
stock market weakness is a terrific buying opportunity. The time is now
to put together a shopping list for good quality stocks.
• Airlines (-14%)
The airlines have been one of the worst performing industries over the
past month. Investors are worried high gas prices and a slowing economy
spells lower earnings ahead. More specifically, they're concerned
airlines will have to cut fares and reduce capacity. Leading the
industry lower are Pinnacle Airlines (PNCL), Hawaiian Holdings (HA), and
Delta Airlines (DAL).
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