As the first half of 2011 comes to a close investors have suffered through a rocky ride. The year opened as it closed with the markets moving higher on expectations that the economic recovery would continue unabated.
The year opened with protests in Tunisia, fueled by the release of Wikileaks cables detailing the opulence of the Tunisian ruling family and a social media crackdown on the organizers, leading to the fall of the government. And via social media this emboldened others to challenge their governments, leading to regime changes in Egypt and Yemen and shaking up the Middle East and North Africa regions.
March demonstrated how quickly events could unfold as the world watched as an earthquake and tsunami devastated northern Japan. The after-effects on global supply chains are being felt today as imports slowed and factories to slowed production.
The PIIGS continue to cause consternation in Europe with Greece coming back for another bailout after failing to live up to the conditions of the first, the Irish banking sector and economy remains crippled, Portugal accepted a bailout, and Spain and Italy wait in the wings.
In South America, once mining friendly Peru took an abrupt turn to the left with the election of Humala who immediately attempted to seize the Santa Ana Project from Bear Creek Mining (BCEKF.PK).
One thing is for certain, risk has returned in a major way to the markets.
Now with the end to the second quarter ahead of us investors are wondering what is in store.
From my vantage point it appears as though earnings for the most part should be fine. Earnings estimates have been written down to reflect the uncertainty regarding global supply chain ripples and in many cases reflect a potential recession.
Companies with Japan exposure may find their earnings a bit constrained as consumer spending dipped, especially in the technology sector as consumers retrenched in the wake of the disaster.
Stocks like Apple (AAPL) are extremely oversold given the recent product launches of the iPad and iPhone in Russia, China and India. Sales and earnings will definitely come in ahead of very muted expectations and it appears as though a new line of iPhones and iPads will be released for the holiday buying season.
One major risk for the technology sector are the potential IPOs by Zynga and Facebook which will pull capital from the technology sector as analysts and investors look over the S-1s and evaluate the investment implications of both stocks.
Banks will continue to feel the pressure as loan growth is constrained by billions in bad loans.
Gold producers should do well even with rising inflationary pressures. The stock prices of gold producers have yet to adapt to $1,500 gold and there is a likelihood of prices ranging in the $1400-1500 range for the third quarter.
My favorite stocks in the gold and silver sectors that are expected to exceed expectations in the second quarter are Goldcorp (GG), which came in far below cost estimates in the first quarter, and Yamana Gold (AUY), whose recent dividend increase gives the stock a roughly 1.5% annualized yield starting in the third quarter.
Overall, this quarter will be all about deliverance in terms of guidance. Companies that miss will be punished and those that exceed expectations will be rewarded.
It may sound simplistic but we remain in a stock pickers market and investors need to monitor their portfolios with a close eye to see if they are in the winners in a sector or the losers.
Disclosure: I am long AAPL, GG, AUY.