Most investors could use some help honing their strategy these days. So we sat down with Diane Garnick, investment strategist for Invesco, a large, global money-management firm, at the CFA Institute's annual conference in Lake Buena Vista, Fla., to find out how she thinks investors should be approaching the stock market today.
KIPLINGER'S: What is your outlook for U.S. stocks right now?
GARNICK: I think the market is going to stay within a very small range -- of plus or minus 3% to 5% -- for the next year or two. So it's going to be a completely different regime from what we've experienced in recent years.
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I am not at all worried that the market is going to lose 25% of its value from this level. But I am just as convinced that we will not see a 20% positive return over the next two years.
Could be worse. Are there any investment themes you like right now?
I think investing in technology is the safest place to be right now because that's where a lot of companies are going to look to reduce other costs.
In the pre-Internet era, there was an ebb and flow to unemployment. When economic activity slowed, companies would lay off people, and when the economy started to turn around, companies would rehire everyone they just laid off.
But now that the Internet has come into place, companies are asking themselves: How can we change our business model so that we no longer need these extra layers of employees? So instead of, for example, hiring people to run all of their stores, retail companies may want to make a one-time expenditure on improving their Web sites. Then they'll never need to rehire all those people.
Then your outlook for unemployment must be pretty bleak.
I think unemployment will peak at around 10% or 11%, but I don't think it will go much higher than that.
Unlike past recessions, this is really a white-collar recession. And that means the unemployed population is educated, experienced and accustomed to positions of influence. So I think we are about to embark on an era of entrepreneurship.
What are the investing implications of this new era?
In my mind, this bodes extremely well for the Russell 2000 index, which tracks small-company stocks.
Plus, small caps tend to do better coming out of a recession than the rest of the market. Small companies are more nimble and better at adapting to changing circumstances than larger companies.
You've been talking a lot lately about the "household balance sheet crisis." How far are we from resolving this crisis?
We're at the end of the first inning, and we may already be losing the battle.
So far, we've had our eye focused on the housing crisis, but underneath that we still have the credit-card crisis, the auto- loan crisis and the student-loan crisis. There's a tremendous amount of debt out there. This will all come to a head over the next couple of innings.
Sadly, lots of households are going to need to file for bankruptcy. Now, I say that to you here, in a Disney property. This is significant because some of the greatest entrepreneurs make it big after filling for bankruptcy, as Walt Disney did. So it comes back to that entrepreneurial era we were talking about.
Any other advice you'd give to investors?
Be nice to your boss because the unemployment picture is not going to get any prettier.
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