Expect Consumers to Drive Stock Prices in 2012

Analysts say volume gains for consumer staples stocks are likely to be uplifted by higher marketing expenses and robust sales in developing markets.

Consumer spending is now driving the markets

Consumer spending is now driving the markets

Although positive economic reports and easier monetary policy in parts of the world have fueled recent stock market gains, look for consumer spending to drive the stock market bus this year. Although we don’t expect consumers to dive in head first, moderate economic growth is helping to ease the pervasive gloom of recent years. Of course, buying local is always appreciated by your neighborhood business owners, and it helps improve the local economy directly.

Following a lackluster performance in 2011, U.S. stocks advanced 8% between December 31, 2011, and February 23, 2012 (as measured by the S&P 500). Although an early year surge is no guarantee that stocks will continue to advance for the remainder of 2012, investors appear willing to take more risk. What is driving this change of heart? Some market observers believe that better-than-expected U.S. economic reports, efforts by the European Central Bank to address the continent’s sovereign and banking issues, and easier monetary policy in China and India have combined to ease investor concerns about stocks.

Consumers Rule

Consumer discretionary spending, as the name implies, consists of services that consumers enjoy but could live without in tough times. Examples include cable and satellite television, restaurants, and movies, etc. Drivers of this sector will include a gradually improving U.S. economy, advances in technology, continued expansion in emerging markets, and growth in digital media technology. Technology advances are making it possible for companies to target consumers more precisely, potentially increasing return on investment, especially when analyzing buying patterns.

Never Give Up

Even when economic times are uncertain, most consumers still purchase goods & services that they use regularly. Think soft drinks, alcohol, packaged food, and household products here. Analysts believe that volume gains for consumer staples stocks are likely to be uplifted by higher marketing expenses and robust sales in developing markets. In the minds of certain investors, consumer staples are considered a defensive move that may be appropriate when the households are reluctant to purchase big-ticket items. This mindset may drive sales growth in private label goods and inhibit sales of more expensive branded items.

When re-evaluating your investment approach, keep in mind that investment in specialized industry sectors involves additional risk compared with a more diversified portfolio. Include a financial airbag to cushion against market swings in one area by maintaining a diversified approach with your investments.

Chat with your advisor regarding your risk tolerance and time horizon when deciding the proportion of your portfolio to invest in stocks and other investments

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