Streetwise for Sunday, July 25, 2021

There has been an overwhelming number of questions asking where the markets are going and what should individual investors do, given the volatility of late?

While I try to answer those first two question on a regular basis, let us take another crack at the problem. As I have said in the past, fear, hope, and greed are often the driving forces on Wall Street. Furthermore, speculators play off those emotions to book a quick profit. However, you are an investor, not a speculator.

Try to ignore the Street’s daily volatility and instead obligate yourself to undertake the necessary analysis to determine the strength of a corporation's financials and operating strategy.

While many prognosticators would have you believing otherwise, the world is not totally falling apart despite the ongoing scourge of COVID-19, including the now prevalent Delta variant. At the same time, this reporting season is unlike any we have seen for some time.

Yet, as Bloomberg recently pointed out, Wall Street is starting to consider a new bearish scenario: one where the economy has already hit its speed limit.

Certainly, as a recent Bloomberg article pointed out, the Street was overjoyed with the likelihood of a strong worldwide economic rebound fueled by easy money and vaccine rollouts.

However, the mixture of price pressures and soaring infection rates provokes the risk that growth could fall short of forecasts. And with global equities facing all-time highs, there is little room for error.

There is also the mitigating issue of inflation. The Federal Reserve at this point is remaining pat in its position that the increase in prices of used cars and homes, as reflected in the latest consumer price index, is temporary and will be ameliorated over time.

The question of course is just how long it will take. No, it will not happen in the next month or two. Economic trends do not move quickly. That said, I would look to an easing of inflation to a more normal rate of increase by the end of 2021, or perhaps the beginning of 2022. It will depend on whatever lingering effects there are from the pandemic.

Nonetheless, with the spread of the delta variant in combination with a global leaning towards tighter monetary policy to bring inflation under control, there is a sense of worry that Wall Street may have become too optimistic.

However, it would be unfair to simply blame the Street. Often corporations hesitate in offering up numbers, citing uncertainty around the pandemic.

As to the market’s future, keep in mind that there have been great times, good times, and some not-so-good times when it comes to investing. Nonetheless, over the years I have reached the conclusion that it is more difficult to lose money investing in stocks than it is to make money.

Nonetheless, investors and investment advisors often take that effortless short-cut of letting others do the thinking. Yes, in the long run the markets will move ahead and therefore so will index funds and mutual funds.

However, those are investment avenues fraught with high fees, higher risk and less return than buying exchange traded funds (ETFs) or individual stocks. It is just that individual stocks will likely do better.

Virtually anyone can invest successfully. There are literally dozens of well-known, high-quality blue-chip companies with a long history of earnings and dividend growth with which anyone can build a solid portfolio. No, you will not become another Warren Buffett next week, but you will enjoy steady investment gains over time.

While large cap companies are not going to grow as fast as the latest high-tech startup, seasoned large cap companies should be the bedrock of every portfolio.

With your foundation in place, you can satisfy a desire for greater action, if that motivates you, and add some high-quality small cap companies. They will enable you an opportunity to achieve higher returns in a somewhat shorter time. However, never lose sight of the fact that risk and return are different sides of the same coin.

Lauren Rudd is a Managing Director with Raymond James & Associates, Inc., member NYSE/SIPC. Contact him at 941-706-3449 or Lauren.Rudd@RaymondJames.com. All opinions are solely those of the author. This material is provided for informational purposes only, is not a recommendation and should not be relied on for investment decisions. Investing involves risk and you may incur a loss regardless of strategy selected. Past performance is no guarantee of future results.