Despite the weak job market, political turmoil, and foreclosure mess, the stock market looks poised to take off. But how does that seem possible with all the doom and anxiety you see on TV and all over the web everyday?
CNNMoney.com lays out a strong argument for why we shouldn’t be listening to those pessimistic bears in the market.
According to the article, there are four reasons for this argument.
1. Investor sentiment often points the wrong way
Right now there’s an overhang of fear in the market that’s not justified by companies’ fundamentals. People’s anxiety about their own jobs and the economy is probably spilling over into their portfolios.
Right now, individual investors can’t decide if they’re optimistic or pessimistic. The problem is that individual investors (that’s you and me) consider all the emotional stuff that’s happening around us.
We know people who’ve lost their jobs (or we’ve lost our job). We see older generations staying at work longer because their retirement portfolios have taken a dive. But this pessimism doesn’t correlate well (or at all) to the reality of a company’s balance sheet or cash flow statement.
2. Corporate balance sheets are strong
“If you focus solely on the economy, you could get bearish,” says Ronald Muhlenkamp, manager of the Muhlenkamp Fund. “But when you look at the health of companies themselves, it’s very easy to get bullish.”
What have these companies been doing the last few years if they haven’t been hiring? Getting out of debt. And not investing or spending. You could call it an extended financial crash diet. These companies are doing what many individuals have failed to do.
3. The economy isn’t as bad as you think
At least the global economy isn’t. Take Europe, for example. While southern European countries were walloped by a debt crisis earlier this year, the region appears to have addressed many of those concerns.
I don’t know if this analysis took into account the recent riots in France or not. This may be the weakest of the arguments. It’s hard to think the rest of the world isn’t experiencing much of the same turmoil as well.
4. Parts of the market are attractively priced
While there’s great debate whether the broad stock market can be viewed as cheap, it’s still easy to find attractively priced stocks right now.
Read the entire article at CNNMoney.com.