Why It Looks Like a Slow-Growth Market Ahead

It was nice while it lasted. Earnings season gave a lift to stocks, but now that second-quarter earnings reports are largely behind us, the market is focused again on the global economy and U.S. macroeconomic issues. And so far that means the bear is back, and it will be difficult for stocks to show strength any time soon.

The reason, of course, has much to do with Fed's statements last week that the recovery was slowing. Comments from Cisco (CSCO) CEO John Chambers that corporate spending on technology could get pressured added to the market skittishness.

As the market tried to digest economic data on the consumer price index, retail sales, consumer sentiment and business inventory, a number of companies, including Goldman Sachs (GS), Deutsche Bank and JPMorgan Chase (JPM) reduced their expectations of a recovery.

The upshot of all this? "Growth is going to be very slow in the second half," says Cort Gwon, director of trading at FBN Securities. "We're in a trading range. This market is capped on the upside, and we still have such high unemployment, slow growth and a lot of underlying problems with the housing market going forward."

Yet Gwon says the downside also has a natural floor because a lot of companies have significant cash on their balance sheets, which they can use to acquire companies, buy back stocks or pay out as dividends. If the market continues to fall, he thinks that companies will start to focus on buybacks.

How should investors play a market like this? One way, says Gwon, is through pair trades, where you remain market- and industry-neutral and you play one stock against another. He is also says covered-call strategies can benefit investors. In a video interview with DailyFinance, Gwon talks about where the market is now, where it appears to be heading and the kinds of stocks he thinks investors should have in their portfolio: