While Wall Street often heads to the Hamptons for the summer, several factors could make this year a little different.
Greater confidence in the economy, an opportunity to buy on an expected dip and a chance to capitalize on volatility could make this summer different than most.
A quick look at a few of the investing trends ahead:
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More Confidence, More Volume
The latest economic reports show that confidence among consumers, businesses and home builders is on the rise.
Those are the kinds of things investors usually look at before they get more confident. Should the trends continue, investors are likely to follow suit.
"You're going to see higher volume and more people creeping quietly back into the market as they have some time to actually think about it," says Diane de Vries Ashley, managing partner at Zenith Capital Partners in Coral Gables, Fla.
"The market has tended to show that despite practically no earnings whatsoever, it's alive, it's well and it desperately wants to keep making money," Ashley adds. "I do think that you're going to get more people coming in, and i think you're going to get surprisingly high volume."
To be sure, the sentiment is not shared universally.
Even during the massive spring run-up in stocks, volume has been anemic, with fewer than 1.5 billion shares changing hands on the New York Stock Exchange most days.
But even among those who wonder if volume will improve there is belief that a lull in traffic could actually be a good time to jump in.
"We don't take vacations here," says Steven Roge, portfolio manager at R.W. Roge in Bohemia, N.Y. "Our portfolios look out three to five years. We're continuing to wait for new bargains among stocks and asset classes. As the market trades down to the bottom end of its range we'll be a little bit more aggressive in picking up shares."
A Possible Pullback
Markets pros have been practically begging for a market pullback after the meteoric rise off the March lows, and many believe it will come soon.
But while a retracement could enact some damage to those who stay in the market, opportunists will use it as a chance to add to positions, meaning another rally could be in the works over the summer.
"What I'm wrestling with now is, like a lot of other people, we believe that a moderate pullback should occur and I think a lot of people are hoping to use that opportunity to increase their equity exposure," says Jay Wong, portfolio manager for Payden & Rygel in Los Angeles, an institutional investment advisory firm.
Indeed, valuations will be a key piece of the summer mosaic.
Many investors feel that even at the current levels there are many bargains in the market. Should a pullback occur, summertime prices could trigger a fire sale.
"There are people stepping up and saying, 'Yes, this asset is mispriced, this company is mispriced and were going to pay a premium to acquire it," says Lawrence Creatura, portfolio manager at Federated Clover Capital Advisors. of Rochester, N.Y. "I'm attracted by the valuations out there."
Economy Looking Better
One thing keeping more investors from taking part in the rally has been fear that the economy could worsen and take the steam out of stocks in a hurry.
But most data points continue to be in a less-bad trend, reflected in leading indicators released Thursday that showed a mild increase, in line with analyst expectations. Such moves have fed the move higher.
"Every bit of data, every announcement, every piece of guidance both here and overseas is important to assess how the global economy is faring, and we're beginning to see the possibility of actual growth," says Quincy Krosby, chief investment strategist at The Hartford. "That's what you're looking for--you're looking for traction, you're looking for demand to pick up."
Second-quarter earnings reports that show a change in business trends would give investors another reason to start buying stocks.
"We're really looking for companies, especially on the industrial side, to start getting some additional orders," Roge says. "It also looks like from an information technology perspective there might be some additional spending. That should bode well for the stock market."
Even Within a Range, Lots of Latitude
Even if the market should show a lack of conviction, few are expecting anything extremely negative to happen.
Absent any major surprises the Standard & Poor's 500 could trade in a range as wide as 750 or 800 to 950, Roge says.
"We're not extraordinarily bullish nor are we extraordinarily bearish," he says. "We're kind of taking a middle-of-the-road perspective."
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Earlier this week, Richard Sparks, senior analyst at Schaeffer's Investment Research in Cincinnnati, said the S&P's "path of least resistance is up" and could reach 1,000 if the CBOE Volatility Index (Chicago: VIX) continues its downward trend.
Such moves are likely to create an interesting environment ahead, unlike many stock market summers.
"Buying at these levels probably makes some sense," Wong says. "I think most people are more concerned about getting in at a good level in what might be a range-bound environment over the next couple of years."
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