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Another late rally a great omen

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by Peter Switzer

A slightly disappointing set of economic statistics from China, which really were not all that bad, did relight the flames of the negative types out there. This led to fears that there would be a slower world economy than was expected but the optimists outpointed the pessimists, pushing Wall Street up in later trade.

Unlike last year, there’s no heavy appetite to be a big seller and in fact, there's a bird’s-size hunger for stocks, which is a good omen.

Aitken’s view

This has resulted in outstanding market players such as Charlie Aitken of Bell Potter taking the big risky step to call an “end to the bear market!”

Aitken did this in the Switzer Super Report late last week and for anyone who would like to read his views, there’s a 21-day free trial for this Report.

In the same report I was more wimpy — let’s call it conservative — where I argued we were getting closer to that day when the worst might be behind us, however I did argue that any near-term sell-off would be another buying opportunity.

Of course, all of Charlie’s confidence has to rest on the key central banks — the European Central Bank (ECB), the USA’s Federal Reserve and the People’s Bank of China — not coming up with a stupid, market-disappointing play. My gut feeling is that they know how important they are and this is not the time for “one false move”, as the old movie line goes.

Wall Street gains

On Friday the Dow put on 42.76 points or 0.32 per cent to 13,207.95 while the S&P 500 was up 3.07 points to 1405.87, but as you can see, we’re not living through convincing market rises at the moment. We’re vulnerable to a bad decision or an unexpected weak economic reading.

On the flip side, if, say the ECB, comes up with a market-surprising, positive policy option, stocks could surge. I argued this over two years ago — what European leaders give, European leaders can take away. What goes on in the EU and the eurozone in particular is the main game with the USA and China, because they’re more likely to follow the script to help stocks.

What do we want to see from the ECB? In a nutshell, anything that will bring down the borrowing costs of Spain and Italy.

What’s ahead?

This week with earnings becoming less significant as most big US companies have reported, the focus will be on economic data. This week we will see retail sales, business inventories, manufacturing and industrial production numbers, housing starts, consumer sentiment and leading indicators.

On the local front, I’m keen to see the NAB business survey on Tuesday, which has been pretty negative lately, and then the Westpac consumer confidence reading on Wednesday. These two readings will primarily affect our interest rate outlook and then our dollar, which in turn will impact on various stocks according to their sensitivity to currency moves.

Interestingly, my view on the Aussie economy is similar to my view on stocks — I’m cautiously positive and these late rallies on Wall Street keep me that way.

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.

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Published on: Monday, August 13, 2012

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.

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