Business News

A September stock market to remember?

| More

by Peter Switzer

Expect a great day on the stock market today with Wall Street surging overnight with the S&P 500 breaking through an important resistance level and going substantially higher. In fact the Dow and the S&P 500 are on course, so far, to have the best September in 71 years!

The Dow was around 145 points or 1.37 per cent higher to finish at 10,753.62 and the S&P 500 put on 17 points or 1.5 per cent to finish at 1142.71, which is 11 points better than the 1131-level that the market had been having trouble beating.

This technically important move actually gave the market momentum to break out of a trading range to finish at a four-month high.

Movers overnight

The tech sector was particularly bullish with the Nasdaq up 1.7 per cent to 2355.83.

And while this was a nice rise, which will need some positive follow up days to embed optimism to power the current rally, volumes still were on the low side. That means we’re not off to the races just yet.

What was interesting was that homebuilders’ stocks did well today and that’s despite the housing sector in the US still being regarded as a real stumbling block for the overall economy. This could be the smoke that says there’s a positive market fire starting to burn for this sector.

There was also a fair bit of merger activity on Wall Street and that’s always a sign that some wise guys think it’s time to buy beaten up, undervalued stocks before everyone starts to believe it’s time to buy shares.

Muddle through

Some interesting data was released from the mob who declare recessions in the US — the National Bureau of Economic Research. They said the recession lasted 18 months from December 2007 to June 2009, which means it was the longest recession since World War II. However, to understand how bad this recession was look at the next two worst recessions.

They happened in 1973-75 and 1981-82 and they both lasted 16 months and so this one was only two months longer. In both cases, the US and the global economy eventually got back on their feet and it reinforces my view that the Yanks will muddle through all of this.

Ducks lining up

The US will have to put up with slow growth in the one to two per cent range but with interest rates so low and the global recovery kicking along it means earnings can go up and this is always good for share prices.

By the way, as September is often a bad month for shares, when it puts in a good one it’s often a prelude for a good period for stock prices.

I reckon a lot of the ducks we need for a decent rally are starting to line up. In fact, in case you missed it the Dow has closed higher for the twelfth time out of the past 14 sessions.

For advice you can trust, contact Switzer Financial Services.

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.

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Published on: Tuesday, September 21, 2010