2008 was an extraordinary year by almost any metric for investors. 2009 appears to be headed for more of the same, with a little more of an “aftermath” feel, as many investors, hedge funds and companies have been washed out of the market.
One of the most talked about things that could move the markets this year is the proposed economic stimulus plan. The figures have varied, but it will probably end up between $750 billion and $1 trillion. Because there isn’t much ammunition for investors to get bullish about, this subject has garnered a lot of speculation. We’ve heard “infrastructure spending”, and every related stock has surged. Before you jump on that bandwagon, lets look at a little more detail. Beyond roads and bridges, I’ve heard we’ll be looking to upgrade our power grid, increase broadband, and health care IT. IBM’s CEO Samuel Palmisano wrote an informative opinion piece about this in the Wall Street Journal. This is the type of infrastructure I’m expecting. Updating our power systems to adapt to newer, more efficient forms of energy. Basically making our infrastructure “smarter.” This enormous piece of legislation will probably create a few short-term rallies in the stock market as more details emerge. It will likely soften the blow of otherwise weak economic data, but probably won’t fix all the problems, and most certainly will add a meaningful amount to our federal debt.
I see the “trading down” effect for consumers continuing, out of necessity. I see deep discount retailers to continue to experience solid sales as people trade down from the likes of Macy’s to Wal-Mart. Mac sales, which have seen strong growth in the past year, could slow as many can’t justify paying the extra money for a new computer. Retailers like Family Dollar and Dollar Tree have reported solid numbers as of late, and this will probably continue for awhile.
Its tough to recommend any banks right now as they are still in the midst of a painful deleveraging process, and many have seen their fundamentals impaired. They are seeing a flurly of activity in refinancing, as mortgate rates keep falling, but banks don’t make a lot of money from that. If you’re looking to capitalize on that trend, title companies are the way to go. They profit from transaction volume, and the rush to refinance has given them, as well as appraisers, a lot of activity.
Emerging markets, which were once considered a “safe haven” have been hit hard as well. Many, like China, rely largely on exporting and manufacturing, which has obviously slowed. Other economies such as Russia and Brazil are reliant on commodities. Because commodity prices have dropped due to the recession, these economies have been hurt. These markets all should be strong in the long term, and it may be a good time to invest if you have a long time horizon. However, they have been unable to escape what was originally expected to be a “U.S. only” problem.
For investors, its become a difficult environment. Its tough to recommend many sectors across the board because there are too many question marks. It is more of a stock pickers market, and a traders market. If you have extra cash, use the volatility to pick up some cheap stocks, but avoid the rush to jump in with both feet. Beyond that, we’ll have to wait and see. If conditions improve, the latter part of 2009 could see some strong gains as moves off the bottom are usually the quickest.