Making Money Alert
Heads in European Sand
02/01/2012
The first month of 2012 is in the books, and it was a very good one for stocks. The S&P 500 Index surged 4.4% during the month, while the Dow jumped 3.4%. The tech-heavy NASDAQ Composite also saw big gains in January, as the index vaulted 8% during the month. The gains we’ve seen in the major domestic markets also were seen overseas, as the iShares MSCI Emerging Markets index (EEM) surged 7.7% in January. Even European stocks were higher, with the iShares S&P Europe 350 Index (IEV) climbing 2.2%.
Now, with all of the upside we’ve seen so far in 2012, you might think that it’s time to feel like a bull. Well, I still don’t.
In fact, I am of the opinion that traders around the globe are taking on way too much risk right now, and the chief reason why is the still-unresolved debt issues in Europe. This week, European leaders held yet another summit to try and force debt-laden countries such as Greece
Once we start to get hard data on the size and scope of the economic slowing in Europe, that news will start to affect the entire global economy -- including the United States Europe needs is growth, not contraction. So far, I haven’t seen any real proposals coming from Europe that will enhance economic growth. Unless and until we do, we are sitting on a powder keg that’s liable to blow up investors’ wealth.
For now, traders are sticking their heads in the European sand, hoping that the region’s debt issues don’t explode into a global recession. I hope Europe ’s issues don’t severely damage the markets either, but as I’ve said many times in the past, hope is not an investment strategy.
What’s important for you, the individual investor, to understand is that despite the robust run in stocks in January, this market environment is still fraught with peril. Until that peril is gone, you need to approach this market tentatively, and always with an eye toward making sure you don’t sustain any significant loss in any one position.
If you have stocks that are up, make sure you move your stop losses up so that you don’t lose the ground you’ve gained over the past month. If you aren’t yet allocated to the market, now is not the time to chase the momentum. The better strategy is to wait for a pullback before entering. Better yet, wait until there’s more clarity in the euro zone before putting your hard-earned assets at risk.