Banks Will Benefit From This Domino Effect
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I understand it’s not in vogue to look at the bright side of things, particularly after the last three years of economic turmoil. But then I’ve never been fashion conscious, so I don’t intend to start now. The news coming out of Europe this morning, overall at least, brought a ray of sunshine to the markets. And it shouldn’t come as a surprise that stocks reacted favorably. Also as expected, overly beaten down financial companies are riding high, led by JP Morgan (NYSE: JPM), Wells Fargo (NYSE: WFC), and even Bank of America (NYSE: BAC) is enjoying a little of the sun’s rays.
While not the all-encompassing agreement the world was waiting for, it is certainly a step in the right direction. The agreement by the remaining members of the Union (Britain opted out; ouch) to provide as much as $200 billion in loans to the International Monetary Fund (IMF) has both Italy and Spain (tactfully) salivating. You see, the funds could be used to help shore up their crumbling houses of debt. Now, that’s good stuff now matter what you hear from the naysayers.
But what has me excited for investors in 2012 isn’t the Euro pact; it’s the recent announcement of December consumer sentiment numbers. According to the monthly Thomson Reuters/University of Michigan index, consumer confidence jumped to 67.7, up from November’s 64.1.
That’s all well and good, but what does that mean heading into 2012, you may ask yourself. This is where the domino effect kicks in. Contrary to what some well schooled economists and financial gurus may say (they’d be wrong), the overriding piece of a strong economic puzzle is consumer spending, period. Here’s why: when consumers spend their hard-earned dollars, especially on things other than the essentials, businesses grow.
As businesses grow, they slowly gain confidence themselves. The offshoot of this newfound confidence is the recognition that now’s the time to invest in their company. How do they do that? A couple of ways, and one of them is to expand their workforce. Slowly to be sure; remember, this is newfound confidence at work. Another way a business invests in itself is to upgrade systems and processes. That helps ancillary businesses thrive. You can see how the dominoes are rolling already.
With more Americans working, even more hard-earned consumer dollars are spent. Eventually, as companies start announcing year-over-year earnings and revenue growth, markets show consistent strength and the U.S. economy improves.
For the savvy investor willing to buy and hold, even if only for six to nine months, there are so many stocks that have been beaten down it’s almost hard to pick just one or two sectors. But let’s give it a try anyway. My (figurative) money is on financial services, including banks, brokerages and insurance companies. Retail, as we’ve already started to see, will be directly impacted by improved consumer spending. Business related firms should also reap the rewards as companies once again look to reinforce infrastructures.
So go to it consumers, there’s more riding on your willingness to spend than the next Cyber Deal or Multi-Hued Friday bargain.
Tim owns none of the companies mentioned above. The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.