The College Investor’s Market Thoughts – August 26, 2011

Another week has gone by!  I know this post is a day late, but not a dollar short!  The market had its first up week in a while, and it was a nice relief to those invested in equities!  I waited for Saturday for this post because Friday was poised to be volatile (and it was!), as the market waited for the words of Ben Bernanke.

Here are some of the key factors that drove the market this past week:

1. Durable Goods Orders – Orders for new durable goods showed a surprising increase in July, and it was the best month in 8 years.  The leaders of durable goods orders were automobile parts manufacturers and aircraft orders.  This could bode well for manufacturers in the coming months.
2. Jobless Claims Rise – Jobless claims rose last week by 5,000 – but 8,500 of the claims were directly related to Verizon strikers.  The markets shrugged off this report, because since the rise was attributed to the striking workers, the employment report showed mildly improving conditions.
3. GDP Growth – The GDP for the second quarter was revised down to just 1.0%, which is low but an improvement over the prior year.  Inflation also came in 0.1% over forecast, but since it still showed a bit of growth, the markets remained unchanged at the report.
4. Bernanke’s Speech – This is what the market’s were waiting for on Friday.  Will there or won’t there be more stimulus from the Fed?  Well, the answer is no in the short term.  This upset the markets initially, and sent the market down 100+ points.  However, once traders realized the short term answer was no because there was modest economic growth and the potential for another shock was minimizing, traders snatched up stocks to rally in the afternoon.  This drove the market to highs of the week.

The College Investor’s Take

• First, gold got pummeled this week.  As the economy continues to improve, you will see gold prices continue to drop (and possibly very rapidly).  This is not an investment to buy into right now.  If you own it, consider selling and cashing out your profits now before you lose them all in a rapid swing.
• Second, energy stocks rallied!  Energy stocks will continue to out perform the broader market.  These large integrated oil firms will continue to deliver strong profits, even with oil around $70-80 per barrel.  With improving stability in the Middle East, there may be more development opportunities for these companies in the near future.  Also, most of these companies pay nice dividends and are good long term holds.
• Insurance stocks may be a buying opportunity in the next week.  It all depends on what Hurricane Irene does.  If there is a large amount of property damage, many of these companies may get beat down in price in the next quarter.   That may pose an opportunity to invest in some great insurance companies.

Readers, are you feeling better about the economy or are you still unnerved? 

This post was written by...

Robert – who has written 317 posts on The College Investor.

Robert is the founder and editor of The College Investor, a personal finance site dedicated to young adult and college student finances. You can learn more about him here and connect with him on Twitter or Facebook.

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