Fragile Markets- What should an Investor Do?

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Some call it recession, some recovery, and a few already shouting depression. But if you ask a chartist, he might point towards consolidating markets that are very volatile within a range. Well, the last one seems more realistic to go by as domestic stocks are swinging directions in a fury. Forecasting market moves has become virtually impossible as there is no solid basis to name the current scenario. So how can one predict the future when he has no clue of where his feet are at present?

Anyhow, there are voices that the markets will see a recovery early next year, but that primarily depends on how it pans out till year end. Till then, uncertainty prevails, and volatility will continue to present challenges for both trades and investors. There is much more that could put-off investors in the near term.

Disappointment Prevails

It seems as if disappointing numbers is all that could be expected by the street, whether it is housing, jobs or manufacturing, which have failed to give any direction to investors till now. Stepping along lines with US, Europe is continuing to contract as the financial crisis is deepening roots in their system. Together with data from Europe, third and fourth quarter domestic numbers can now be looked forward to give a clear direction to the markets.

Economic growth is the key indicator that all investors must be closely watching, as this taped pace of witnessed recovery is what makes it suspicious. Currently growing at around 3%, with latest statements from fed expecting it to slow down further, once again raises the most asked question- is the recession really over?

Eyes on Corporate growth

In another most likely scenario, corporate earnings data may be the next pivotal from where the bulls and bears might get a better view of the key performing sectors. This data will be more important to ascertain whether corporate growth will initiate a job spur or bad data will shake the bolts of this fragile recovery.

Should investors stay on the sidelines?

That’s the current scenario, the way it is, and nothing can be done to change what’s already done. Somehow, this is what can be understood, hearing to lame statements from the Fed, which seems to have no plan in place to quick heel the economy. So in such financial conditions what all options do investors have to protect their capital and make some returns if lucky?

Well, investors have no other option but to stay heavy on cash, as going overweight on stocks in current times may make then forced sellers if the second dip scenario arises. Taking short term calls on the market is out of question, as even the long term possibilities are questionable. Moreover, if the markets head into side-trending mode like it did between sixties and eighties, then stock returns may not even beat inflation.

Chase Value in Stocks

Overall sentiment may be negative and investing tougher than ever, but there are still ample opportunities for long term value investors, especially in the Healthcare sector. Value investors can latch on to heavily undervalued stocks such as Novartis and Johnson & Johnson, which are trading almost 20% below their fair value estimates. Apart from this sector, investors can find value in alternative energy space, but should restrict with mutual funds and ETFs.

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