Where Do We Go From Here?

November 8, 2012 12:16:00 PM

Yes, the election is finally over! That's the good news!

Now for the bad news...

Well, actually, I think it is good news. But, attention will now be drawn to the looming fiscal cliff. Many are concerned that leaders in Washington will not be able to compromise and begin the process of implementing greater fiscal discipline and debt reduction in the United States.

Although the rhetoric will be harsh and long-winded, the bottom line is, they will resolve the fiscal cliff. When? No one knows. However, it will probably not take very long once the pressure really starts to mount in getting something done.

In the meantime, more than likely, the U.S. stock market will probably be more volatile than it has been in the recent past.

If yesterdays action in the markets is any indication, investors are clearly speaking their minds on making sure Washington gets the fiscal cliff issue resolved.

Because this will more than likely be resolved in the next several months, it is my opinion that the volatility will create a great opportunity for investors.

Yes, no one likes to see the stock market go down. Especially after all the volatility we have experienced in the last several years. However, I continue to believe the economy is continuing to improve (albeit slowly) and many good companies are flush with cash while valuations continue to be on the lower end of historical averages.

When you throw in the continued improvements being seen in China today (finally!) and historical low interest rates here in the U.S., I believe investors will become more interested in the yield the S&P 500 offers and the potential for capital appreciation as the economy improves.

It is my opinion, on a pure valuation basis, many good companies here and abroad look very inexpensive. This is of course if there is no recession. But, I believe a recession is not in the cards if the fiscal cliff issue is resolved.

The bottom line?

It is the correction we are experiencing (and will be for a while longer), which will create the opportunity to continually invest in great companies. My advice, which I continue to follow for our clients is, stick to the knitting. Look for the opportunities to continually invest in the companies you want to own over time when they are on sale!

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Mark Pearson

Mark Pearson

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