Wall Street has been incredibly focused on the short term. That’s why we saw such wild swings in the month of August. When you focus only on what’s happening right now, you lose sight of the big picture and where the biggest money can be made. That’s why investors want to use this opportunity to lay out a road map for the rest of 2011 and prepare for volatility, profit opportunities and anything else the market has in store.Mile Marker 1: Trading Volumes
The first thing we can expect is for trading volumes to pick up. This happens every year as Wall Street professionals return from their long summer hiatus. And what we really need to see happen at this time is a drop in the Chicago Board Options Exchange Market Volatility Index (VIX). This index does exactly what it says: It measures the level of volatility in the markets.
As investors return to the market, we’ll see this level drop, which will attract even more investors, and that’s when I expect volumes to really increase. Later in the month, we’ll also get a “window dressing” volume surge as professionals scramble to make their portfolios more attractive before the end of the quarter. So it’s possible we might see another quick nine-day rally like the one that took place in June at the end of last quarter.
Investors aren’t eager to repeat the mistakes they made this summer and will be looking for stocks with strong earnings and solid growth prospects. Let’s face it: Most stocks look like a bargain right now, but the only way to know for sure is to look at the numbers, and investors are going to look at earnings. S&P 500 companies are in their 10th consecutive quarter of exceeding analysts’ expectations. That is another reason why I expect investors to benefit the most when volume returns in the coming weeks.Mile Marker 2: Retail Sales to Rise Moderately
It was just a few months ago that rising food prices were causing protests, riots and social unrest around the world. With food prices on the rise, consumers had less money to spend on other goods and services, but food and energy prices have settled and will continue to moderate in the coming months. Specifically, I expect crude oil prices to consolidate now that Labor Day and the summer driving season are over; this will help put more money in consumers’ pockets.
The result will be an increase in retail sales, which, overall, will continue to slowly but steadily rise — especially for “must-have” consumer items. One stock capitalizing on this trend is the company that does it best, Apple (NASDAQ:AAPL). Apple’s iPhone 5 is due to arrive in stores in just a few weeks (Some rumors say as late as mid-October).