Markets are in a holding pattern, but another great buying opportunity may not be far away.
So this is what a summer slowdown looks like -- a stock market going nowhere. Not even a conditional proposal from RSA (LSE: RSA) for Aviva's (LSE: AV) general insurance businesses could excite the market.
Ah… I remember when times were different, when takeover bids would send the market into a frenzy, with traders speculating on who the next takeover target might be. Give me 2007 any day.
Then again, perhaps not. In hindsight, we now know the go-go days of yesteryear were fuelled by massive levels of debt, much of which was raised on the back of soaring house prices, both here in the UK and particularly so in the US.
Pop goes the bubble
Pop went that bubble, and now we're left to pick up the pieces. After the despair of the FTSE plummeting to below 3,500 in March 2009, we had some fun whilst it soared back up to above 5,800 in April this year.
But the fun police, otherwise known as a slowing economy, stepped in and stopped the party, with the FTSE slumping back to the 5,300 level it trades at today.
Of course, in the short term, markets go up and markets go down, so there should be nothing overly concerning about the FTSE having a bit of a speed wobble in the past couple of months. On the contrary, rather than fret about a falling market, net buyers of shares should welcome a lower market, as it gives them an opportunity to buy shares cheaper.
Give me gold... NOW!
Many investors don't look at it that way. They want to see instant and tangible results. They want shares like yesterday's big winner, Central China Goldfields (LSE: GGG), up almost to 50% on a 450% upgrade to their estimate of gold resources.
The problem is, picking a winner like Central China Goldfields is like trying to find a needle in a haystack. Good luck if you want to play that game amongst the dregs of the penny shares. You deserve your rewards, although I'd politely suggest you're more likely to be a total loser.
Being slightly more realistic, my best guess is we're looking at a slowly recovering economy and range-bound stock market for some time to come.
There will be periodic bouts of stock market depression, like we had in early July, when the FTSE slumped back to 4,800. Those are the times to buy. If and when the market presents you with selling opportunities, you should not be shy of taking those opportunities.
The joy of investing
For the more active traders amongst us, and I include myself in this group (where is the fun in investing otherwise?), the great thing about a range bound market is it gives you opportunities to buy, opportunities to sell, and opportunities to buy back in again. Low share dealing costs allow you to wash, rinse and repeat, without charges eating too much into your profits. Great days.
As for your strategy with the FTSE at 5,300, in this slow trading summer, it feels more like a holding market than a buying or selling market.
On Bloomberg, Quincy Krosby of Prudential Financial called it "a bridge period." I'd call it a time to enjoy the long summer days and evenings. They'll be gone before too long.
The Goldilocks market
So on we stumble, this Goldilocks stock market neither too hot nor too cold. But the great thing is you know opportunity is never too far away. If I were a betting man, I'd bet we'll have a compelling buy opportunity in the next couple of months.
Tomorrow I'll explore some of the reasons. As a preview, these four headlines might have something to do with my thinking.
- "Investors Fleeing Stocks With Cash Flow…"
- "UK Two-Year Yield Reaches Record Low…"
- "London House-Price Drop Wipes Out 2010 Gains…"
- "Low share trades to cost state £1bn"
Until then, happy holding.
More on the economy and the markets:
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