The yin and the yang

We aren’t sure which is which. For that matter, this stock market (bulls only) doesn’t know which side to root for. That’s a bit of the rub- do we root for a stronger economy or a stagnant economy or a weaker economy if we want stocks to be higher?
The answer is somewhere between a flat economy to a stong economy and here’s why.
Many companies are in good position with cash on the balance sheet, minimal inventories, and streamlined workforce. Commodity prices have been under control and financing has been cheap though at times difficult to access. A weaker economy would reduce demand and soon make revenue and earnings growth problematic. A super strong economy might spark inflation and surely would induce a series of rate hikes (signalled by the Fed last weak). That olde Goldilocks axiom  is perfect- demand to produce sales and some job growth but not so much as to set off the embers of inflation that seem to be smoldering beneath the economy’s surface.
As we have written, we believe the economy will vacillate between strengthening and setting off inflation fears and weakening and resparking deflation talk. 2010 will (in our minds) be a more boring than 2010 - how could it not be? In the end, it will also be a less profitable one as well.
Dividends (somewhat ignored in the late 2009 market spike) will become more important and may indeed represent 1/4 to 1/2 of stock returns in 2010.Evaulate your own situation but take a look at the ETF symbol SDY. It is a diversified manner to get solid dividend players in one fell swoop.

This entry was posted on Friday, February 26th, 2010 at 9:10 am and is filed under Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.