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Are we topping out?

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by Peter Switzer

One thing stock markets won’t do is rise all of the time and so you have to expect down days like these but the best bit to take on board is that there’s no really bad news.

So, I guess the fair question is — is this rally topping out?

Recall the trouble on the stock market since May has simply been that the bad news pile was a lot higher than the good news, but with Slovakia now on board in Europe with the debt rescue plan, the EU can now focus on the next steps. These will be new hurdles for the stock market and that’s why I argue that we’re not out of the woods yet.

The Dow finished 40.72 points, or 0.35 per cent, lower to 11,478.13 and the S&P 500 shaved off 3.59 points or 0.3 per cent.

It’s good to see the VIX or fear index down close to 30 and the fact tech stocks had a good day on Wall Street suggests confidence in the US recovery is becoming stronger.

Earnings are the main game

Right now earnings news is important but the market is waiting for a big news story to move the market. A great jobs number, a new Fed decision on QE3 or a better idea out of Europe all would be exactly what the doctor ordered for a confidence-sapped investor community. The experts who know these things say there’s an enormous amount of money on the sidelines and nervous investors won’t be buying shares until it’s clear that the worst is behind us.

JPMorgan reported a lower profit result but it was better than what the analysts were predicting. The European division was the big loser and given what has been happening on the continent, the slip was quite small.

"All things considered, we believe the firm's returns were reasonable given the current environment," chief executive Jamie Dimon said. And I agree.

On the worrying side, China’s latest trade figures were weaker than expected and this has got the worrywarts out in force suggesting China will have a hard landing. I don’t think so.

What’s ahead?

Tonight we should see more interesting info with US retail sales, consumer sentiment and business inventory numbers due out.

One last thing, Bill Gross, who runs the world's largest bond fund, has stepped up his buying of mortgage-backed securities in September and Reuters says he now holds 38 per cent of his assets in mortgage debt. Gross manages about $1.2 trillion and is regarded as a shrewd investor and his confidence on mortgage-backed securities has to be seen as a positive sign that he expects better times ahead. Let’s hope he’s right.

On the topping out question, I think we’re taking a breather after a nice run up and if some more good news comes along, we will go higher but it’s good to see the investors are not breaking their neck to dump stocks like they did in August and September.

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: Friday, October 14, 2011

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