Obama's First Challenge: The Economy

We're not out of the woods yet. A two-day decline in the Dow of more than 900 points is proof of that.

I have no doubt that the dismal state of the American economy will dominate the early days of Barack Obama's administration, especially as he begins to build his cabinet. You can bet that Wall Street will be keeping a close eye on Obama's economic team.

This time around, the next treasury secretary is just as important as the secretary of state, especially as the president-elect acts quickly to tackle major problems affecting the economy; namely, rising unemployment, the credit crisis and a new wave of foreclosures.

There's also talk about a second round of economic stimulus and a new financial regulatory crackdown.

Obama doesn't get sworn in until January 20, so investors still have some time to adjust to whatever plans he and his team set into motion. But one thing is certain: The economy still faces a great many challenges that won't get fixed overnight.

Today, for instance, new readings on jobless claims and retail sales renewed investors' concerns that the economy is in a recession.

Claims for unemployment benefits dipped by 4,000 to 481,000, the Labor Department reported, but jobless claims above the 400,000 level are considered recessionary. What's more, long-term claims jumped to their highest level in 25 years! These figures were released a day ahead of the October jobs report, which investors will be watching closely since it's a good indicator of the economy's health.

On the retail front, retailers are releasing their October sales numbers, which have been worse than expected. Wal-Mart (WMT) did report a 2.4% rise, but the overall sales trend–especially for specialty retailers–has been down. These results show that consumers are still cutting spending.

The bottom line is there's a tough road ahead for the U.S. economy. The best thing investors can do right now is to stick to a disciplined investment strategy that shields them from the worst of the current market.

I talk about fundamentals a lot, and there's a reason for that. If a company doesn't have the fundamental strength to weather tough times, then it's not a company worth investing in. The stocks I recommend to subscribers of my investment advisory services have continued to grow their sales and earnings through the current economic climate. These are the only stocks we own because when the market switches gears and heads higher, they will be the next market leaders!