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Stock Market: Pros Urge Investors to Act on Positive News

Stock Market News

January 2012

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Stock Market: Pros Urge Investors to Act on Positive News

The start of a New Year doesn’t call for a wholesale change of strategy, but for many individual investors the start of 2012 is a perfect time to review and rebalance. Over the past few months, many investments have shifted quickly. Investors who decided to bail on stocks after summer’s plunge have seen equities find firmer ground. Having given stocks the cold shoulder, many are rethinking their choices since the Dow Jones Industrial Average was up 6 percent by the end of December. Likewise, the municipal bond market ended the year in positive territory, with the average long-term municipal bond fund up 9 percent.

So what are the majority of investment advisors suggesting for 2012? Perhaps more than ever, analysts are urging investors to stick with a plan rather than responding to market fluctuations. Avoiding extreme philosophies, advisors are suggesting that investors add more stocks to their portfolios – paying special attention to dividend paying stocks. Of course, there is still plenty of concern regarding the global reverberations from the Eurozone defaulters, but experts suggest that investors who are waiting to jump back into the markets, do so now – or risk missing the boat. Companies are cash-rich and 10 years plus of variable performance have given us market valuations at affordable rates. The pros note that by the time the economic news is undeniably good, stock prices will have increased noticeably.

While encouraging clients to return to the stock market, investment gurus also caution clients to fit their portfolio allocations to match their age brackets and their respective aversion to risks. Likewise, investment advisors who are suggesting that older Americans and retirees revert to their long-favored municipal bonds are also recommending a little caution alongside careful selection of munis linked to cities with high credit ratings. 

Perhaps we have become accustomed to expecting bad news – so much so that we can’t see some visible positive changes that have been happening as 2011 drew to a close. We’ve been getting some increasingly good economic news, but perhaps we’ve not really digested it yet. Here are some positive trends that might have been overlooked amid the dire headlines:

Consumer spending on cars and construction has begun to increase; retailers are reporting better-than-expected sales.

The U.S. economy expanded at 2.5 percent in the third quarter of 2011, which means that the nation’s gross domestic product reached almost $13.4 trillion – a little higher than its peak in 2007. This means there is money for spending on corporate equipment and technology.

Jobs are being added to the private sector – albeit slowly. There are 7 percent more job openings than there were at this time last year.

Of course, an improving U.S. economy is only part of the picture. There are still many global issues – financial and geopolitical – that could affect the U.S. markets in the New Year. Even the most optimistic of Wall Street’s gurus are not predicting a swift return to less troubled times. However, many believe that U.S. stocks are a good bet over the next few years. There will be some volatility and some bumps in the road ahead, but experts agree that many of the uncertainties and fears have been priced into current valuations in the stock market. Experts indicate that waiting for Europe’s problems to resolve or for our own presidential elections to conclude would be a mistake.

Things are looking up, and it is time for investors to get back into the market for the long haul.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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