Wall Street once again has turned its attention to Europe, where countries are struggling to keep their economies upright and to keep their debt from imploding. A couple of so-so economic reports here — which I should say, followed on some decent reports earlier in the week, didn’t help sentiment — and the markets here fell from the start. But one thing I do want to mention right now is that this market’s decline is being driven by fear and uncertainty, not by the important facts on the ground.
There is no evidence that points to a definitive double-dip, nor is there evidence that corporate earnings gains are simply going to roll over in the coming quarters unless consumer disenchantment turns it into a self-fulfilled prophecy.
If anything, companies once again are predicting gains for the second half of the year. Also, you’ll be interested to know that dividend increases are on the rise in the S&P 500, with more than 200 companies having boosted dividends this year (and just two having cut them) and fully 15 companies instituting dividends for the first time.
I think dividends are worth thinking about right now because buying stocks with dividends essentially pays you more than you’d earn in a 10-year Treasury; gives you the opportunity to buy into a company that can grow profits, grow its dividends and grow its balance sheet; and all things being equal, will see its stock price rise as a result. Until the stock goes up, you get paid to wait. A bond, on the other hand, pays you your yield, then 10 years down the line, it gives you your money back with no inflation adjustment. That doesn’t work for me.
I have every expectation that the coming weeks are going to thrill us with more spikes and valleys, and the airwaves will be filled with the pundits claiming they were right one week ago, the last time this happened.
Of course, let’s not forget last year when the markets also declined before righting themselves. The Dow is down 15% below the year’s April high. Last year the Dow fell 13.6% before rallying to an almost 30% 12-month rise (and that’s without dividends included in the calculation). Will we see another move like that? I can’t say for sure, but I do know that when, not if, it comes, we’ll be ready, having invested with some of the best managers in the business.
Hang in there. We’re fine. We can’t control the markets and the economy, but we can control what we invest in, and with whom. And on that score, you and I are fit as fiddles. In fact, if stocks were overvalued, why would corporate insiders be doing such heavy buying — the heaviest since 1998?
