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Happy Days: Are They Here Again?

What a difference two days makes. From the panic of Monday’s precipitous fall and the seeming rally on Tuesday (that ended in another significant loss), we’ve been treated to a booming Wednesday and a Thursday that also is delivering delightful gains.

Is the worst over?

Maybe, but probably not. Global economic conditions, especially those in China, haven’t miraculously improved since earlier in the week and while there’s no way to forecast the supernatural, I have a feeling real-life economic developments won’t be spectacularly positive over the coming months. At least, not in China and developing countries.

Good Signs

Here in the U.S., however, the past two days have produced some surprisingly good economic news for a change. Thursday morning, the Commerce Department said the U.S. economy grew at an annual rate of 3.7% in the second quarter, sharply higher than the 2.3% growth rate it initially reported. Consumer spending was revised up to 3.1% from 2.9% after the first quarter’s 1.8% gain.

Pending home sales also rose. The National Association of Realtors said Thursday that the figure, which represents contracts that have been signed but not closed, rose 0.5% in July after an upward revision to June’s numbers. The index is now 7.4% above the level of July 2014, indicating a more robust housing market.

Even Chinese markets took part in the euphoric mood, with the Shanghai Composite Index rising 5.34% on Thursday. That hardly made up for recent stock market losses there, nor is it a sign that China has figured out a way to spur slowing growth while shrinking its massive credit bubble.

Continuing problems in China and the spreading of those problems to its chief trading partners, competitors, and suppliers — especially raw material suppliers in Australia and South America — means that the world and its stock markets are in for a continued rough ride.

Making the Ride Bumpier

The U.S., whose diversified economy can better handle rough patches, is likely to be buffeted by these changes, as was evidenced by the China worries that set off the recent market drop. What will likely add to the market’s bumps here at home is the effect of high-speed trading on market swoons and rises. There have been some reports that high-speed trading exacerbated the price declines last week and on Monday, and I bet that’s what happened. Algorithmic-based trading models tend to have a momentum bias, so once stocks start going down, the computer models keep ordering sells and those directions get transmitted for execution at speeds that make lightning seem pokey.

No doubt, the upswings on Wednesday and Thursday were turbo-boosted by high-speed traders.

What to Do

Now that the markets seem to have caught their breath and recuperated to some degree, I’m doing exactly what I was doing when the markets were tanking: nothing. I have no idea whether markets are headed for another fall or more gains. Maybe both, because they’ll probably be more volatile given the skittishness induced by the recent drop.

But sticking to your dividend guns will help see you through. To bolster that case, look at dividend superstar Johnson & Johnson (JNJ ). Its shares spent most of the summer at around $100.00. Then came the “crash” and the stock fell to a little over $90.00 a share. Next comes the rebound, and JNJ is back in the mid-90s. Big deal. The dividend still yields about 3.2% and the company is just as healthy as it was two months ago.

So in the words of President Dwight D. Eisenhower, who used the expression in the 1950s, “Don’t just do something: stand there.”

Image courtesy of hywards at