Investor Agenda

3 Key Questions For The Second-Half


I know it’s hard to believe, but here we are in the second half of 2009. It’s been a remarkable year already, hasn’t it?

Think about how far we’ve come. The second quarter was the best in 11 years, with the Nasdaq running up 20 percent, the S&P 500 15 percent and the Dow 11 percent. It’s been something to watch, as the S&P 500 is now almost 40% above its March low.

But if you look at where we are after the first half of the year, you get an entirely different picture. The Nasdaq remains the leader (+16 percent), but the S&P 500 is only up slightly (+2 percent) and the Dow is actually negative (–4 percent).

I think how the rest of this year plays out for investors will be largely influenced by three important questions:

1. Has the market gotten ahead of the economy? The market has priced in an economic turnaround of massive proportions, and we have yet to see any growth. Most economists believe growth will resume in the second half of the year, but will it be enough to sustain the recent market advance? We’ll have to see, but I have my doubts.

2. Will business investment pick up? We’ve had the massive stimulus package (and I wouldn’t be surprised to see another one in the future), but stimulus money has yet to flow strongly into the economy. Both consumers and businesses remain tight with their spending. When and how much they loosen their purse strings – and, especially, how much businesses do so – is critical to the size and pace of a recovery.

3. What will happen with healthcare? Healthcare now makes up about 18% of the U.S. economy, and President Obama is pushing hard to reform the current system to try to control costs. Any kind of reform will impact both businesses and consumers, so Wall Street will be watching closely. The Street also hates uncertainty, and it’s still too early to know how dramatic the reforms could end up being.

As someone who has followed the financial markets so closely for the last 20 years, I think it’s going to be fascinating to see how the rest of the year unfolds. I look forward to watching it with you.

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