Although the U.S. stock market and many international ones have rallied nicely since the beginning of this year, there is a fragile sense of confidence in future returns. To a degree, the new year’s rally was a reaction to over-pessimism during the fourth quarter of last year. Stocks had gotten cheap and when the feared recession or a myriad of other fears didn’t come true, stocks bounced; now what?
Investors now look to future earnings and growth. Unfortunately, the outlook is quite cloudy. For every positive indicator, there is a weakening one; it’s a real mixed bag. Even within the same industry, one company can be performing strongly while another is faltering. This is happening more and more and belies the popular wisdom of broad sector investing.
The fact is that growth and the business environment are not robust enough to benefit all participants. It continues to be a case of the strong getting stronger and the weak fading. This has important implications for investing. It calls for careful selection. That has always been the case and one we espouse. Future returns will probably come from stock picking, not from being in or out of the market. Stay steady, my friends.
The Lonely Bull