| U.S.
Market Looks Ready for a Pullback |
Published: May 31, 2006
The U.S. markets have performed
extremely well in recent years, with the S&P 500 and the Nasdaq
soaring +59.9% and +73.8%, respectively, off their March 2003 lows.
However, at this point I believe the overall market could be due for an
extended period of sideways or declining trading action.
Not only are the U.S. markets
due to take a breather, but they're also eventually going to feel the
impact of rising interest rates, high oil prices, increased geopolitical
tension, and the ballooning U.S. debt load.
With all of these factors as a
backdrop, you might want to consider scaling back some of your current
portfolio positions to both lock in profits and to reduce your exposure
to the U.S. markets.
In addition, if you're
investing for the long haul, then going forward you'll want to make
certain to capitalize on two major trends . . .
For starters, I believe
emerging markets will outperform the U.S. market in the coming years.
Not only are many foreign nations delivering stronger economic growth
than the U.S., but when looked at on a valuation basis, they're also
trading at a steep discount to U.S. stocks.
The second trend you need to
capitalize on is the slow and steady decline of the U.S. dollar, which I
believe will continue to decrease in value relative to many foreign
currencies (I'll discuss this topic in greater detail in the coming
weeks, so please stay tuned).
Profiting from Growth in
China
Over the course of the next decade, China will remain the world's most
important growth economy. However, the one major problem with investing
in China is that the nation's accounting and regulatory standards do not
yet compare to those of the U.S. and other more developed markets. As
such, investing directly in Chinese companies could involve more risk
than you might want to take.
A better way to invest in
China, as well as to capitalize on the declining U.S. dollar, is to
invest in Chinese firms that are listed on foreign exchanges (and
therefore have to comply with more stringent accounting standards), as
well as to invest in other markets with heavy trading exposure to China.
With this in mind, investors might want to take a closer look at a few
of the exchange-traded funds (ETF) listed below, all of which could
handily outperform the S&P in the coming years . . .
Emerging Markets iShares (EEM)
PowerShares Golden Dragon Halter USX China Fund (PGJ)
Singapore iShares (EWS)
Taiwan iShares (EWT)
Hong Kong iShares (EWH)
South Korea iShares (EWY)
In addition, although the U.S.
market could remain flat throughout the remainder of the year, you can
still earn stellar profits by investing directly in individual U.S.
stocks. The catch is that in a sluggish market you'll need to be much
more selective when making any investing choices.
That's where StreetAuthority
comes into the picture. Throughout the coming weeks and months, we will
continue to introduce you to a variety individual stocks and funds that
are likely to move sharply higher no matter what happens to the overall
market.
Good investing!
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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Paul Tracy
founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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