It seems lately that investors and everyday Americans are a lot like that mythical thirsty man crawling through the desert, looking for water. We've crawled our way through financial crisis and a harrowing stock market drop, and now we're desperately looking for a sign that the recession is ending. And while promising signs have appeared on the economic front, rising levels of unemployment could mean that these bright spots are nothing more than a mirage.
Putting on the brakes
A recent Manpower Employment Outlook Survey produced gloomy results, with hiring plans dropping to their lowest level since the survey began in 1962. While a minuscule 12% of employers expect to increase staff in the fourth quarter, 69% are holding pat, and 14% are planning a decrease. Ouch! That means folks looking for jobs may be hard-pressed to find employment for the rest of this year.
We've already suffered through mass layoffs from big-name companies like AT&T (NYSE: T ) , Starbucks (Nasdaq: SBUX ) , and Adobe Systems (Nasdaq: ADBE ) in 2008 and early 2009. And aerospace giant Boeing (NYSE: BA ) announced layoffs as recently as this summer. Most economists expect the unemployment rate to top 10% before things start to improve in the labor markets. With so many people out of work or worried about losing their jobs, economic recovery is likely to limp along at best.
Build your defenses
So what can the average Joe or Jane do to protect his or her own interests while attempting to ride out the unemployment storm? Well, first and foremost, make sure you've got a cash cushion available for emergencies. This stash can help protect against job loss, unseen medical situations, or any number of unanticipated expenses. Creating a cash cushion may not be exciting investing, but if the unexpected occurs, it could be the best investment you've ever made.
Second, be ready for more volatility. The stock market fell hard and fast, and its recovery since last March has been equally rapid. There's still a lot of economic uncertainty in the air, so don't be surprised if the market succumbs to another swoon. A correction isn't out of the question, especially given how far and fast the market has bounced back.
I'm not advocating market timing here -- merely advising folks to keep their eyes open and not be surprised by further market stumbles. A knowledgeable investor is a prepared investor.
Along those lines, now may be a good time to reassess your risk tolerance and revisit your current asset allocation. If you thought you could handle the potential ups and downs of more risky stocks, but you've lost countless nights of sleep in the past few years as you've watched your retirement funds get cut in half, maybe you're not as risk-tolerant as you thought. Take this time to move to a less (or more) aggressive allocation, if that's more in line with your current taste for risk.
Finally, don't let volatility or uncertainty cow you into sitting on the sidelines. Investors who decided to yank their money out of the market after last fall's precipitous decline have missed out on the nearly 50% rebound since this spring. There are still good buying opportunities out there, no matter where we are in the business cycle.
One sector I'm expecting good things from is information technology. Companies have cut back on tech spending so severely during this downturn that a big backlog is building.
To take advantage of a potential tech rebound, consider following the advice of the team over at large-cap growth fund Manning & Napier Equity (EXEYX). Management is currently favoring big-name tech players like Microsoft (Nasdaq: MSFT ) , EMC (NYSE: EMC ) , and Cisco Systems (Nasdaq: CSCO ) , all of which land in the fund's top 10 holdings.
Each of these companies boasts significant advantages of scale, a price-to-earnings ratio lower than the average company in its respective industry, and the ability to capitalize quickly and decisively on a rebound in tech spending, thanks to their wide reach in the tech sector.
For more financial planning help and hints on how to make the most of your intellectual capital, check out the Fool's Rule Your Retirement investment service. With your free 30-day trial, you'll get access to a wealth of retirement-focused advice and investment recommendations to help you reach your goals.
We may still have an upward slog ahead of us when it comes to getting people in this country back to work, but the economy will show brighter signs of life long before the unemployment rate starts to drop. And that means investing opportunities galore -- if you know where to look.
Amanda Kish heads up the Fool's Champion Funds newsletter service, a division of Rule Your Retirement. She is invested in the Manning & Napier Equity fund, which is a Champion Funds recommendation. Starbucks is a Motley Fool Stock Advisor recommendation. Microsoft and Starbucks are Motley Fool Inside Value selections. The Fool owns shares of Starbucks. Click here to find out more about the Fool's disclosure policy.