CHICAGO, June 4 (Reuters) – To maintain your mettle as an
investor in the face of mixed economic signals, you have to be
able to be able to do what F. Scott Fitzgerald said was the test
of first-rate intelligence: be able to hold two opposing ideas
in your mind and still function.
On one hand, it’s counter-intuitive to buy into a decline.
It doesn’t feel right, although you will get better prices on
quality stocks. The standard approach, which I suspect most
investors choose, is to retreat to the sidelines.
If you can take the risk, keep investing in solid companies.
If you need growth in your portfolio, don’t pull out; embrace
the long-term prospects of owning companies that produce
consistent profits and dividends. A good place to look for
profits are U.S. consumer staples and discretionary stocks.
These stocks are among the most profitable in the world, have
paid robust dividends and continue to benefit from the
snail-like U.S. recovery that may be “de-coupling” from Europe
and not moving in lockstep.
How can this be possible in the face of U.S. consumer
confidence falling to its lowest level in four months in May,
fears of a global slowdown roiling stocks worldwide and pathetic
My theory is based on this: Slowly recovering U.S. home
prices signal that the dismal housing recession may have
bottomed out. When Americans absorb that reality, they will
start to buy homes, cars, appliances and other consumer goods.
And with the easing of oil and gasoline prices, more money will
be spent on these other items. We’ve seen some of this activity
recently in May retail sales, which were stronger than expected.