Hans Wagner's  Instablog

In the last year, many analysts and investors have focused on China as the driver for global economic recovery. Actually, there are countries other than China that are experiencing significant economic growth, contributing to the global recovery. Many Asian countries and a few in South America are showing the world the way. The growth of these countries offers important export opportunities for the U.S.

 

In 2000, foreign business amounted to about 30% of the revenue for the S&P 500. Now it is up to approximately 50%. Within the S&P 500, this trend is even more noticeable as many technology, materials, energy, and industrials generate more than 60% of their revenues internationally. Companies such as FreePort McMoran, Accenture, Cisco, EMC, Microsoft, IBM, Chevron, Boeing, Caterpillar, Joy Global, Flowserve and even Apple are seeing the affect of this global growth trend.

Risk in the stock market is everywhere. Investing in the stock market is fraught with worry, for good reason. If you lose half of your investment, you must double your return to just breakeven. Warren Buffett, considered by many to be the world’s greatest investor, states his first rule of investing is “do not lose money.” Unfortunately, the risk in the stock market of losing your money is always a possibility. However, without taking some risk there is no reward. Therefore, successful investors employ stock market risk management strategies to minimize their losses. Managing risk in stock market starts with identifying the type of risk and taking action to mitigate the impact of the risk on your investment portfolio.

 

Risk in the stock market comes in many forms and each can lead to a loss. The most common is the overall trend of the market. Approximately 60 % of the move of an individual stock is attributed to the trend of the stock market. If the stock market is rising, it takes with it most of the other stocks, though not in equal amounts. When the stock market falls stocks sink with it.

The DJIA closed above 10,000 today. This is the 21^st time the DJIA has crossed through this psychological level. Fundamentally and technically the market is pushing the upper limit. After a seven month rally that does not seem to end, it raises the question - what do we do now? Continue to participate in the market, “holding our nose when we buy” with the expectation the rally will continue through the rest of the year. Or do we take further precautions on the anticipating a move down. Let’s look at a few of the factors and how we might go forward from here.

 

Many professional traders have been looking for a significant pull back that has not materialized. A number of them are below their benchmark performance level and they must make up for their poor performance by the end of the year. To catch up, they will have to buy on any dips. Most will buy into sectors and stocks that have been performing well lately. Look for them to add to the strength of the market through the rest of 2009. After that, they will likely curtail their participation as they reassess the state of the economy and the market.