We have six months done in 2012 and stock markets seem to have gone nowhere. I want to know what you think is going to happen for the next six months. Where will we be at the end of December? I’m asking you the question and giving you my answer…
So what’s your bet on…
I think the US stock market will finish on a positive note. The FEDseems to support economic growth by maintaining its interest rate at the minimum and is considering additional monetary help (such as the increase in the TWIST bond operation).
I’ve mentioned this several time but the S&P 500 is definitely undervalued right now. When half of the index pays more in dividends than the 10 year Gov Bonds, it’s definitely a sign that you must invest in equity and leave bonds.
Historically, Americans have been part of the most combative and innovative companies. I can picture many stocks in green at the end of the year. I’m expecting the US stock market to finish at +10%.
The Canadian Stock Market?
The Canadian stock market worries me a bit. Our economy is doing okay, the unemployment rate is relatively low and the Bank of Canada has room to decrease interest rates if needed be. Unfortunately, most of our economic growth is fueled (literally) by natural resources. Oil prices have been on a slump due to the economic slowdown inChinaand high reserve inventories in theUS.
I’m not too worried about a Canadian Housing Bubble Burst since the Government is constantly implementing more restrictions on the mortgage lending industry. The required cash down and interest rates used to qualify a borrower have been increased while amortization has been reduced to 25 years. As interest rates won’t hike up tomorrow morning, we should not see any black clouds over our heads. The market is roughly down by 3% right now and I expect the Canadian stock market to finish at 0% YTD. If oil prices go back up, I wouldn’t be surprised to see it going positive.
European Stock Markets?
Honestly, anything could happen in the Euro zone in the next six months. While most markets have been severely hit over the past two years, there might be some great companies to buy at cheap prices. I’m more thinking of international behemoths. Economic growth inEuropewill most likely be neutral for several years due to their debt problems and austerity plans. I wouldn’t expect much from this continent over the next five years. However, if you want to make a play over the next six months, you could probably see your stock valuation going back up to a more realistic one. I think that the next six month will be positive on European stock markets.
Emerging Stock Markets?
Back in 2008, we counted on the BRIC to get out of our bank mess. Today, I wouldn’t expect much from these countries to restart the economic engine again. The Chinese population is set to be poor for several decades again and can’t buy as many goods as Americans even though they outnumber them by 10 times. Inflation and social pressure are rising in these countries and I’m expecting a small growth. BIK (following the S&P BRIC 40) is currently down by roughly 3.50%. I think they can recoup their loss and finish at +2%.
If I look at the US market, I see new construction rising slightly over the bar of 700,000 units per month. However, in order to become a stable market, new construction has to rise over the 1M level. Since 2008, we went from 400,000 to 700,000 new units. We still have about the same work to do to reach a healthy market.
The Canadian housing market is slowing down smoothly but prices keep rising. Since Canadians are more indebted than ever, I think we should see prices hitting a plateau shortly. With a new set of mortgage lending rules announced this summer; this should cool down young couples enthusiasm!
REITs are still a good investment but I doubt you can expect much growth on this side. If you focus on revenues, I don’t think you will be disappointed as distributions should be quite stable. Interest rates won’t go up any time soon anyways ;-0.
I don’t even like to play Nostradamus with commodities. There is too much speculation around them and I find it impossible to rationalize. I expect oil prices to rise slightly but that’s just because it has dropped so much lately J. I’ll let you bet on this one!
What’s Your Best Bet With an Investment Today?
Here are a few one liners of what could be your best move with your investment for the next six months (just for fun J ).
#1 Sell RIM
#2 Buy US Techno Dividend Stocks
#3 Sell your bonds and replace them by Canadian REITs and dividend stocks.
#4 Check out my Best Dividend Stock for 2012 free eBook and pick a few suggestions J