July 31, 2012 at 16:13 PM EDT
Market Wrap-Up for July 31 (COH, PFE, VLO, STX, CMI, more)

The markets struggled to find a sense of direction today, but by the end of the day, sellers prevailed over buyers. Bulls were pinning their hopes on this morning’s report that average home prices in the nation’s 20 biggest cities rose 2.2% in May from the prior month.

As far as earnings are concerned, investors were liking the news from the likes of Cummins Inc. (CMI), Eastman Chemical (EMN), Pfizer (PFE), and Valero Energy (VLO). On the flipside, sellers rushed for the exits on uncertain guidance from high-end retailer Coach (COH), which closed down over 18%. Also lower today on earnings results were shares of Humana (HUM), Seagate Technology (STX), and Archer Daniels Midland (ADM).

How Investors Deal with the Rising Cost of Living

For quite some time, market watchers have been using oil prices as a gauge for the overall economy. As much as we like to see economic strength, the danger of oil prices rising amid market rallies can be very troubling for folks struggling to pay their bills — not to mention trying to save for retirement.

Clearly, the onus is on investors to dig deep to prepare for higher expenses and do everything in their power to generate higher income, both from their career and their investments. Today’s earnings report from high-end retailer Coach (COH) noted the company is preparing for a challenging year ahead. This comment is certainly a sign that discretionary income is being hurt by rising energy costs and of course a tough job environment.

How are some coping with the economic picture of late? Well, we’re seeing an upswing of entrepreneurs hoping to remove the salary cap forced upon people who work for someone else. We’ve also seen recent strength in the municipal bond markets, as investors continue to seek tax-advantaged strategies for their taxable accounts. Finally, dividend investors continue to pile into dividend-related stocks/funds/etfs in non-taxable accounts.

As I’ve commented many times in the past, the volatility of various benchmark economic reports is staggering. One week economists declare things have bottomed for good and the worst is over (especially concerning housing/real estate data), but then the next batch of numbers is paints the exact opposite picture. The psychological effect of these sort of swings remains to be seen, but my take is that people are just plain afraid. Add in the fact that many experts regularly dispute the honesty or validity of economic data, and my feeling is that a potential economic turnaround will be that much more difficult.

We continue to try our best to parse through the economic data. One thing is for certain, though: if you get too bearish you will miss out on great investing opportunities. If you get to bullish, on the other hand, you may be caught chasing bad risk/reward situations. For example, traders tend to all pile into recently high-flying names, but when things inevitably turn south, a mass exodus from the stock occurs.

This situation can be especially troublesome when decent-yielding stocks are pushed higher and higher, leading to much lower yields. Remember, momentum traders aren’t in these stocks for the long term. We’re seeing many well-known brands right now whose yields are being chased higher and higher, but the company’s simply won’t be able to sustain the inflated valuations.

As the chase for yield/income continues, we’ll keep subscribers updated about any and all changes we see coming in the markets and the economy.

Income, Income, Income

At Dividend.com, we maintain our focus on the best income-producing investments the markets have to offer during time of heightened volatility. We want to make sure we have only the most pullback-resistant names on our Best Dividend Stocks List. Also, if we see the market putting in what looks like a decent bottom, we will be prepared to scale up the list of stocks we like. Stay tuned and be sure to look for Dividend.com Premium member alerts along the way. Don’t count on the government or your employer to set you up for a remarkable retirement. Take control, do your own research, and achieve your goals yourself!

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Thanks for reading everybody. I’ll see you tomorrow!

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