Upside for Stocks?

Emerging Markets
by 





Another late day sell-off has left the S&P 500 at
1,030. That’s below the February 2010 lows. In fact, we are now looking
at the support level established in August and October 2009.

I think we’ve pretty well established what investors are
pricing in to stocks. There’s the slowdown in China, austerity plans in
Europe
that are likely to slow growth there, and then there’s
the U.S. economy.
Unemployment, housing, earnings, and new banking regulations are all
weighing on stock prices.

Let’s also not forget that yesterday was the last day of
the second quarter.

As TradeMaster
Daily Stock Alerts‘ Jason Cimpl
told us yesterday, stock prices sold off in a very
similar fashion at the end of the second quarter in 2009. And then they
took off in the second week of July and ran higher into October.

Can we expect a similar scenario to play out this year?

Probably not. There’s just less to get excited about,
economically speaking. Still, stocks are oversold and we should be
expecting some upside.

I’vementioned
Citigroup (NYSE:C) as a good stock to pick up. I still think you can make
some money on this one. Starting today, the Treasury will be taking a
hiatus from selling its stake in Citigroup until the company reports
earnings on July 16. That could allow for some upside in the stock.

The Treasury has accounted for roughly 10% of the daily
volume in Citi recently, and it’s been all on the sell side.

It’s curious why the Treasury didn’t seek to unload some
of its shares in a private placement. Geithner and company could have
probably gotten a better price and not added downside pressure by seeking
out private investors.

Anotherfinancial stock that looks attractive over the long-term is JP
Morgan (NYSE:JPM). With a current forward P/E
of 7.8, it’s not hard to think shares could trade higher. Especially if,
as I’ve noted, the company may be able to start setting aside less cash
for loan loss reserves.

Japan‘s Tankan manufacturing survey
entered positive territory in June. The bullishness is a result of
increasing trade activity in Asia,
especially China.

This is a very interesting counterpoint the fears
of U.S. investors
that China‘s efforts to
slow its economy will affect U.S. exports.

Asia
was certainly not affected by the financial crisis in
the same way the U.S and Europe were. And demand in
Asia
has been recovering at a stronger pace than developed
economies.

It’s likely we will see emerging economies continue to
be more resilient than developed economies that are struggling with debt
and growth issues.

Finally, I hope
you all have some good plans for the 4th of July weekend. It’s
always important to step away from work and the stock markets and get
some enjoyment.

Thanks for all of your comments, and please keep them
coming: [email protected]


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