Trading The Stock Markets – Should You Be Investing Right Now?
At the present time the FTSE 100 is currently in the 4700s and the Dow Jones is as high as 9400. We’re coming up to the end of the quiet summer months and volatility is sure to go up as it normally does in September and October. So with the economy showing signs of improvement, should you consider investing in the stock market again?
Well my personal opinion is that despite the current market strength, it’s far too early to start throwing your money back into the stock market. The stock markets are pretty fairly priced right now in my opinion and so there’s little value to be had in any of the major companies.
In some respects the fact that the major stock market indices such as the FTSE 100 and the Dow Jones are trading so high, indicates that any economic recovery that may be forthcoming in the future is already priced into the markets.
It’s fairly obvious that the economy will be a lot healthier at some point in the future, so as a result the the major indices will probably be trading much higher than they are at the present time. However if you are investing in shares for the long-term you really want to be buying shares when they are undervalued.
This is determined by looking at things like PE ratios and the ratio of market capitalization to profits. You should try to invest in shares that are undervalued according to historic data. Sadly the fact that the markets have risen sharply recently has increased the price of most of the major listed companies.
Therefore you might like to either wait for a possible sell-off so many shares are a lot cheaper, or put your money into small-cap stocks that are not so directly impacted to the movements of the wider stock market.
With regards to the first point, a correction certainly cannot be ruled out because we have risen far higher than many of us thought they would, and so a bout of profit taking could well be imminent.
Small-cap stocks probably offer a little more value right now because there will always be a few bargains to be had. The only trouble is that in tough trading conditions, like the ones we are experiencing at the moment, these fledgling companies are very high risk investments because very few of them come through a recession unscathed.
So in summary my own view is that the best strategy is possibly to invest in strong companies that have an established record of earnings and dividend growth. However I don’t necessarily think now is the best time to invest because I think the markets will probably be sold off once more before we start to see a meaningful market rally (this is only my opinion and does not represent financial advice).
A better idea may be to turn your attentions to short-term trading instead. Whatever you do, it’s important that you keep up with all the latest online trading news and economic data in order to help you predict where the markets may be headed in the future.
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