Market pundits talk about how the stock market climbs a “wall of worry,” a euphemism for the ability of stocks to go up even in the face of chronic problems in the economy. Usually this is because the market initially over-reacted to impending events and sold off sharply, only to realize that the world would in fact not come to an end.

The phenomenon is pretty evident in the market over the last couple of weeks with the S&P 500 rallying 5% since ECB President Mario Draghi’s conference in London on July 26.

Despite the recent enthusiasm for the market and the global economy, we are still facing some fairly big hurdles over the rest of the year and none of which seem like the typical short-term hiccups from which the market will quickly rebound.

Three inflection points facing the market
Despite strong promises by the ECB, most still see an eventual Greek default and more trouble on the horizon for the European Union. The market has rallied on hopes of a large bond-buying program by the bank, but German leaders are still balking at a further increase in ECB responsibility for sovereign debts.

China has yet to see its current round of stimulus programs show through the economy. GDP growth in the second quarter was the lowest since 2009 and is still falling. The world’s second largest economy will be less able to support global growth than it was during the recession.

And of course, there is the little matter of the $600 billion fiscal cliff awaiting the economy of the United States. Though most believe some form of agreement will be reached in the lame duck session of congress, the political Armageddon being played in Washington does not bode well for the markets.

A negative outcome in any one of these events could be disastrous for the market.

But I cannot predict the future. What is an investor to do?
Investors need to build their portfolio around the possible scenarios facing the market over the next year. Investors can look to companies that will do well in each scenario by understanding how economic and political events will affect different assets like stocks and commodities.

At one end of the spectrum, we see the world economy struggling against the continued debt crisis in Europe, a slowdown in China and some reduction in fiscal spending or increased revenues in the United States. Central banks around the world are already on the verge of restarting easing programs and would meet such a scenario with a large scale response. Whether it would be enough to support growth is debatable. More certain is the effect on gold evidenced by the 35% surge in price in 2009, during the height of the recession and prior stimulus programs.

At the other end of possible outcomes, we see the global economy rebound as growth measures supplement austerity in Europe, stimulus supports the Chinese economy and various sectors of the U.S. economy help stabilize growth. Copper is a key input for a growing economy, used in electrical equipment and construction. Prices have increased more than 13% on an annualized basis from the lows in 2009 but are well off their 17% compound annual pace over the last nine years.  Any recovery in the economic picture could easily send copper prices up 30% to highs seen last year.

One stock to play both scenarios
There is one company that can benefit from either scenario. Freeport McMoRan (NYSE: FCX) is a metals miner with 12% of revenue from gold and 78% coming from copper. I like the company’s relative overexposure to copper versus gold. While I want some exposure to gold to benefit from widespread central bank policy easing, I think the upside in copper is much stronger. The company also has exposure to molybdenum, about 12% of total sales, which is used in corrosion resistance and steel production.

In the 10 years to 2011, revenue grew by a compound annual rate of 30.4% while earnings per share grew faster at a 37.2% rate. This reflects management’s ability to turn big sales into even bigger profits. The company’s operating margin, a key metric of management efficiency, is 34% and higher than 83% of industry peers. The shares trade for 10.3 times trailing earnings, relatively cheap considering an industry average of 11.9, and pay a 3.45% dividend yield.

Risks to Consider: The shares have a beta, a common measure of volatility, of 2.29 meaning it is generally twice as volatile as the general market. Priced around the midpoint of its 52-week high and low, the stock should be supported from valuation but investors must be ready for a wild ride before a rebound.

Action To Take –> Exposure to two very different metals means Freeport McMoRan benefits from a variety of scenarios. The short term could see a boost as the Federal Reserve is expected to embark on QE3 within the next two meetings. Longer-term investors can benefit from the trend in dollar weakening and demand for both metals.

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