AsiaLIFE

While recent data from the U.S. has been better than expected and instilled some confidence in the markets and the U.S. economy in general, how much stock should we really place in these recent indicators? In May we heard (courtesy of the bank stress tests) that the U.S. financial system though in dire straits, is no worse than expected. The previous month we heard that while the U.S. economy is losing jobs at a terrible pace, this was also only according to expectations. On top of that, recent figures from the Institute for Supply Management (ISM) showed that manufacturing output had fallen in April – but at a slower pace than in March. There was even talk from President Obama himself of stabilisation in consumer spending and housing.

Lest we forget, we are still in a recession.

 

The reality is that according to economists U.S. gross domestic product (GDP) will decline this current quarter. Although the second half of the year might show some marginal growth it will not be enough to stem the tide of unemployment. There will still be an awful lot of people out of work for a very long time to come – and this will adversely affect global economies.

 

So, with all this talk of market rallies, recoveries and rebounds what should we do?

 

To begin with it is important to put things in perspective and not to get caught up in all the newfound euphoria that the TV pundits, fund managers and experts are currently spouting. While it is good news that confidence and optimism appear to be returning to the markets, we must temper this with a dose of realism. In such a market – where some stocks are showing gains of 200 percent (since the beginning of the year) – it is easy to feel the need to jump in feet first. After all you do not want to be left out do you? This is where I must urge caution. Remember that – although there are some positive signs the economy is on the way to recovery – it might well be a long road ahead with a lot of bumps. For every winner there will most probably be a loser!

Rather than trying to second guess the stocks that will do well in this current rally, the best course of action is to continue to invest for the long-term and to stick with a sensible plan of regular contributions. This will reduce the risk and take away the guesswork. For those who simply ‘must’ invest in stocks in the market right now, there could be some bargains to be had. However, I would advise you engage the advice of a personal financial adviser to assist with stock picks. Also I would remind everyone that, much like with other investments, when picking stocks it is advisable to take a long-term view and avoid trading in and out during this volatile period. Remember, do not panic – under any circumstances! Acknowledge the fact that we are living in volatile times and stocks will invariably go up as well as down. Try to ignore the euphoria, the panic and the general noise that is generated from the markets every day. Take a measured approach and realise that every investment is for the long-term.

 

As for my own clients I will continue to recommend a long-term approach with clear investment time-lines and objectives. I will also continue to recommend monthly contributions as a way to weather this volatile storm – whether the market is up or down.I will leave the market rallies to others!