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U.S. Investors Are Looking For A Rebound

Apr 17, 2008
While a weak employment report last Friday (April 4, 2008) seems to confirm the U.S. economy is in the early stages of a recession, investors that are looking at the longer term are already thinking about which stocks will work best for a recovery.

Many are saying that the future might be brightest for one of the worst performing sectors this year - technology - and one of the best - energy. And they're also finding things to like about health-care stocks.

Although worries about the economy still loom over the stock market, there were hopeful signs last week as the Dow Jones soared nearly 400 points on Tuesday, April 4. The 8th largest gain for the Dow in it's history.

Still, this month could be challenging as companies report first-quarter earnings and issue their expectations for the rest of the year. Many on Wall Street believe that earnings expectations for the second half of 2008, with forcasts of double-digit percentage growth, are too high and the U.S. market remains vulnerable to disappoint if those forecasts don't materialize.

Some had been looking to financials to help lead the stock market out of it's downturn. While stability in bank and brokerage stocks may be necessary for the market to head higher, the kind of earnings growth that powered strong returns on financials in recent years now appears to have been driven by borrowing and moving certain assets off their balance sheets.

With the severity of the credit crunch and a downturn in consumers ability to spend, a steady flow of good news that would fuel a sustained rally may be in short supply for months.

But the steps taken by the U.S. Treasury and Federal Reserve to stabilize the financial system have some investors thinking that the worst of the selloff could be over. They were encouraged by the market's calm response to last Friday's, April 4, employment report showing a loss of 80,000 jobs in March 2008.

Technology companies are at the top of the list of many Fund managers. The sector that was expected to be strong this year, is down 15% since the S&P 500 hit it's all-time high in October 2007, making it among the worst performers of the indexe's 10 sectors.

Tech companies have been hit way too hard. The reason behind this is suspected to be in investors thinking back to the last recession when holding tech stocks was the worst possible strategy. But the market shouldn't underestimate the profit growth this sector can generate over the longer term. Techs could miss expectations this year, but not for the next 2 -3 years!

One factor for the recent selloff of tech stocks is that financial companies traditionally are big buyers of new technology and their ability to spend might be compromised by their losses from the credit crunch and the economic slowdown.

And talking about health-care stocks. Some Fund managers are shying away from the big pharmaceutical companies that face the continuing problem of big drug products losing their patent protection. Instead, these Funds are taking a liking in biotechnology or medical equipment makers because whether it's fixing the eyes, the knees or fixing hearts, there's always going to be a tailwind from an aging population.

Yours in Successful Trading,

Ricky Schmidt
About the Author
Ricky Schmidt's website http://www.stockbreakthroughs.com was created out of frustration in trying to decode books, magazines and newsletters on the subject, which are supposed to be for beginners but are not because they're too difficult to understand. Too many "Big Words" and too much intelligent sounding grammar is used which is not very useful.
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