Buy, buy, buy! That's all I've heard recently as the market collapsed. I can't say I disagree, but I'd add one very important emphasis: Be super-selective in your stock picks.
True, when markets are wacky and down, it's generally a good time to buy stocks. If you bought in early 2009, you pretty much doubled your money two and half years later. While we're nowhere near that kind of crash, it's important to understand the difference, and to know why it's more crucial than ever to be selective in your stock picks right now.
Headed for another recession?
While we were headed out of a recession in 2009, we may be heading into one today. The second quarter's weak GDP number is only one of the many factors pointing in that direction.
Within the U.S., unemployment has remained stubbornly high. Meanwhile, an increasing number of corporations are announcing large job cuts, while fewer businesses create new jobs. Inflation -- especially for food and energy -- is creeping higher, stoking fears of stagflation.
The housing crisis remains far from over, as home prices continue to drop. Manufacturing growth remains slow and in some areas contracting; consumer confidence has hit a record low; productivity is falling, and labor costs rising.
Internationally, China's growth is slowing from a robust pace, which could affect its demand for other countries' goods. Eurozone sovereign debt problems remain unsolved, threatening another financial crisis, while Europe's economic growth is also losing steam.
Then there's the political situation in the United States, which partly drove the S&P's downgrade of the U.S.'s credit rating. Can Republicans and Democrats cooperate not only to bridge the gap over a deficit reduction plan, but also to solve the country's economic issues?
On top of all that, the U.S. has nearly depleted its arsenal of weapons with which to fight another economic slowdown. Fed chief Ben Bernanke could only say that the Fed would keep interest rates low until 2013. And with deficit reduction taking precedence in Washington's legislative agenda, President Obama almost certainly can't push another viable fiscal stimulus plan through Congress.
Will we sink into a second recession? I sincerely hope not, but the signs are there. Morgan Stanley and Goldman Sachs both just lowered their global growth forecast.
Resist the temptation
Investors could be pricing a recession into the market already -- but then again, shares could fall even further if things continue to get worse. We could be reliving the weakness of 2010, from which markets recovered nicely ... or we could face a much more serious slump this time.
Large drops in big names such as Bank of America
Bank of America shares plunged after AIG
Be selective and careful
Personally, I wouldn't buy any of these companies -- but I'm not saying you shouldn't. Just be aware of their exposures to a possible second recession. Few companies ever prove completely immune to an economic slowdown, but some can be less volatile, and offer additional incentives to investors. At the moment, I'd seek out boring, safe stocks.
For example, BCE
Then there is Teva Pharmaceuticals
Finally, there's the world's biggest fast-food chain, McDonald's
The market seems confused and uncertain to me, and its current weakness could continue for some time. I'd rather take less risk now, and buy stocks that I believe can withstand the heat.
The Motley Fool owns shares of Teva Pharmaceutical Industries, American International Group, and Bank of America. Motley Fool newsletter services have recommended buying shares of McDonald's and Teva Pharmaceutical Industries.
Fool contributor Melly Alazraki regretfully owns shares of Bank of America. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.