Amended expectations

There is much to be happy about these days: the market is up almost 80 percent from its lows of 12 months ago, corporate earnings are beating estimates and business spending is on an upswing. The Feds announcement at the end of April that it did not plan to raise interest rates anytime soon was also likely to please investors. Despite all this, some experts remain poised and ready for the current positive market performance to take a nose dive. Rather than try to untangle the various viewpoints - you'll note that both bulls and bears often use the same data to support opposing positions - it is worth remembering that all analysts are right at some point in time.

Without a doubt, analysis and market performance predictions are difficult, and the conventional wisdom of the past is no longer relevant to the new recovery.  Few experienced investors expect to see a return to the fast economic growth we had for the majority of the last decade, and most hope for steady growth. They realize that the worst is over. The government acted to stabilize banks and major financial institutions, and the U.S. economy has bottomed out. Its what happens now that has analysts puzzled. Some fret over the possibility that individual investors will grow impatient with slow economic growth and become nervous when they dont see a dramatic rebound in the economy this year.

Interest Rates

For these bears, the Fed's April announcement that it sees further signs of improvement in the U.S. economy - but not sufficient to raise interest rates should be a relief. The continuance of cheap money in the U.S. should help get the economy back on track faster. Other countries have begun to raise interest rates, and many see this as detrimental to global economic recovery. Some investment experts applaud the Fed's decision to keep rates at current levels because higher rates would have created more damage to investors' confidence.  The language the Fed used remained essentially the same: improvements were noted in increased capital expenditures but "high unemployment, modest income growth, lower housing wealth and tight credit" were also cited.

The stock market continues to have low trading volumes. Analysts attribute this to investors' skepticism and lack of confidence, as well as reduced inflows from mutual funds. You can look on this as positive - there is plenty of purchasing power in the wings to boost future volume and stock prices; or as a negative - demonstrating how severely the market decline has damaged investors trust.

Finally, many pundits believe that although they remain unchanged, interest rates must rise before too long. They suggest revisiting your portfolio to get ready to shift gears when that time comes. Your portfolio picks might be influenced by predictions that:

• Dividend-paying, fixed-income investments and bonds will prove to be less attractive options for investors;
• Fears of inflation will diminish, which is bad news for hedges like commodities and gold;
• The dollar will gain strength. Foreign investment will increase as investors seek government bonds and other investment vehicles that are tied to the U.S. dollar. Financial experts are already announcing that more foreign capital is coming into the United States.

Future rate increases dont mean you should make substantive changes now. As always, all general observations are not intended to replace consultations with your professional tax advisor and your legal counsel.

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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