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10-week highs on Wall Street

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by Peter Switzer

What Europe effectively took away, Europe is now giving back, so let’s hope this new and improved politically responsible Europe can be sustained.

Sure there are better signs in the US helping Wall Street register 10-week highs but the overwhelming game changer has been Europe. Now that all 17 member countries of the EU on the euro have voted to give more clout to the critical fund that will make the rescue of the likes of Greece happen — the European Financial Stability Facility — there is a growing belief that shares have become more trustworthy.

It’s interesting to note that the Dow Jones index is now up 0.58 per cent for the calendar year. Another positive indicator is the VIX or fear index, which has fallen from above 40 a couple of weeks ago to around 28.

By the way, in case you were wondering, we’re down close to 12 per cent for the calendar year and so we need a big, positive set of circumstances for our index to finish in the black for the calendar year.

Over the weekend

Over the weekend, the Dow was up 166.36 points to 11,644.49, a gain of 1.45 per cent, which should help our shares have a great day at the office today. The S&P 500 was up 1.74 per cent to 1224.58 and that means this index was up nearly six per cent in one week!

And this happened even as Standard & Poor’s cut Spain’s credit rating and so that is an even better sign.

To the US economy, there was another nice green shoot with retail sales up 1.1 per cent in September. That’s the best result in seven months, which was when the European fear thing and stock market falls began. Economists expected a 0.7 per cent rise.

But don’t get too carried away. The Thomson Reuters/University of Michigan survey of consumer sentiment was down nearly two percentage points to 57.5 from 59.4 but economists had expected a slight rise.

This isn’t a big deal as these readings of consumer sentiment can be all over the place — it was good seeing that there was not a big drop.

Coming soon

This week in the US:

Manufacturing data for the state of New York
Bernanke speaks
The Fed’s Beige book, which gives a snapshot on the overall economy
Eexisting home sales
Inflation
The Philadelphia Fed survey
Leading indicators.

If there’s an improving US economy, these indicators should point to it. That said, it could take another month before the fear factor from Europe is further flushed out of the system.

Of course there are important earnings results from leading US companies and these will impact on the market as well.

If Europe continues to make the right noises and the US economy can prove it has turned the corner, then the expected better third quarter recovery of stocks that I have been predicting and has happened so far, will eventuate.

But as you know, when it comes to stocks they’re always a work in progress!

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Monday, October 17, 2011

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