Stocks still are in no-man’s-land after Wednesday’s monster rally and Thursday’s 119-point pullback on the Dow. In the short term, the market could go either way, up or down, because the fundamental news is decidedly mixed.
On the plus side, it’s encouraging that Italy’s senate bit the bullet and passed a significant fiscal-reform package yesterday by a comfortable margin of 165-141. A German court also blocked a constitutional challenge to the country’s participation in the EU bailouts. These developments lessen, if only to a modest degree, the chances that Europe’s sovereign debt woes will explode into another global financial crisis.
Back at home, Thursday morning’s weekly report on initial jobless claims, while by no means a beacon of hope, at least didn’t add to investors’ anxieties. New claims for unemployment insurance — a sensitive and usually reliable forward-looking economic gauge — edged up by 2,000 in the week ended Sept. 3 to a seasonally adjusted total of 414,000.
I certainly would be happier if weekly claims slipped below 400,000, as they did for a brief period in early spring 2011. But at least we aren’t witnessing a spike to 450,000 or higher, which might signal an oncoming double-dip recession.
As for President Barack Obama’s “jobs” speech Thursday night? Ho-hum. Nothing much new, and very little market impact likely.
So how do we play it when stocks, like the grand old Duke of York’s soldiers, are “neither up nor down”?
Take your time making new commitments. Don’t rush. I’ve said in previous blogs that I see the S&P 500 in a trading range, for now, between approximately 1,100 and 1,250.
Near the top of that range, you should do some tactical selling. As the market approaches the bottom of the range, step up your buying.
As noted on Wednesday, I’ll buy recovering energy titan BP (NYSE:BP) at $36 or less. The stock hasn’t dipped to that level yet, but be patient. It will! BP provides a mix of generous current income and bountiful appreciation potential — exactly what we’re looking for in this growth-challenged market (and economy).
Another name you might keep an eye on is Nestle (PINK:NSRGY). The world’s strongest and best-managed food processor by far, NSRGY has had everything going for it recently except the runaway Swiss franc.
As a Swiss company, Nestle reports its sales and profits in francs. Because most of the firm’s business is conducted outside Switzerland, however, those foreign results tend to shrink when translated into a rising franc.
On Sept. 6, the Swiss central bank decided to drive down the franc and keep it at 1.2 francs to the euro or more. This step will immediately enhance NSRGY’s earnings for the balance of 2011 and probably into 2012 as well.
Nestle pays dividends once a year, typically in April. (The payout has been sweetened 15 years in a row.) Current yield: 3.7%.
Officially, I’ve got a buy on the stock at $59 or less. But I think you’ll be able to snag NSRGY a bit cheaper if you wait for the S&P to go back down to 1,150 or below. You can’t hurry love, and you can’t hurry the market into doing what it needs to do.
