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After Irene, Wall Street becalmed

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by Peter Switzer

It’s now been six positive sessions for Wall Street out of seven but the buying is looking less convincing. Probably the market is where it wants to be and now the accumulation of good versus bad economic and European news will determine the direction of shares.

So the 'E-factor' is the main game between now and the end of the year.

One good sign was that the market rallied higher into the close on the New York Stock Exchange and investors got over a disappointing consumer sentiment reading for August but who could be shocked by that? August brought the dummies on debt in Congress, the credit downgrade for US sovereign debt and then the stock market engaged with a mini-crash as double-dip recession fears in America and debt dramas in Europe struck fear into the hearts and hip pockets of market players.

That was the D-factor and it sent share prices down.

Right now Wall Street is in waiting mode with a positive twist but it could turn negative anytime.

Overnight, the Dow was up 0.18 per cent to 11,559.95 while the S&P 500 was up 0.23 per cent to 1212.92.

Keeping it positive is the latest minutes from the Fed meeting, which referred to possible actions to stimulate the US economy further. And when the market professionals get a mere hint of QE3, it helps Wall Street go higher.

Two experts

Of course, all of this is speculation and so given we’re in guessing competition territory, let’s go to two experts from the US, who both have a good record of picking the market.

The first is Larry Kantor from Barclay’s Capital where he is head of research and the second is James Paulsen, chief investment strategist at Wells Capital Management and has over $360 billion under management.

Paulsen on CNBC said he thinks fundamentals will take over for the rest of the year and he’s expecting a big bounce-back of the US economy, predicting a three per cent figure for economic growth in the second-half of 2011. This is a long way from a recession!

Kantor believes lower gasoline prices, Japan coming back on the production line after its dislocation following its run of disasters and the recent consumer spending figures pointing to a better economy than recent share sell-offs have been suggesting are good omens.

He has third quarter economic growth at two per cent but is not confident that Europe can surprise on the high side.

If these guys are right, it’s good news for long-term investors but it doesn’t mean it will be all plain sailing over the historically volatile months of September and October.

So, as Irene tells us, America is in hurricane season and so is Wall Street but the calm of a US winter historically is the safe haven for stocks. Bring on the rally for Christmas!

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: Wednesday, August 31, 2011

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