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Be positive in 2010

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by Peter Switzer

As 2010 looms, I remain positive on the economy and stock market. No one should expect anything like this year with the 50 per cent jump since March in equities, but a nice rise, which could surprise on the high side, is possible.

Optimist’s bandwagon

It was in the depths of the GFC market crash around October that I decided to get on the optimist’s bandwagon. It was pretty easy as there were few people on board.

Most economists, media commentators, fund managers and equity analysts thought a recession was a certainty. Just about everyone expected unemployment to go above seven per cent and the majority were in the eight per cent-plus region.

Some outliers had unemployment topping 10 per cent and the S&P 500 going into the 500s! For your information, the index bottomed at 683 after being as high as 1565.

To position us now, remember the S&P 500 is now around only 1100 — it has a long way to go to get to the old highs. Even if we saw the US market add 20 per cent next year, which could be a stretch, we would only be in the 1,300s or so. That’s still a long way from 1565.

The point is that’s the level we will have to crawl to over the next three years to put the stock market on a sounder footing to go above the previous highs.

Rate rise in the US

My optimism is driven by news out of the US that the economy continues to improve and the fact there is speculation the Yanks could raise interest rates earlier than expected is a good thing (of course, the Federal Reserve yesterday said in its Federal Open Market Committee statement that rates will be kept on hold for “an extended period).

When rates start to move it up, it will coincide with job creation in the States. The greenback will rise in value, the Aussie dollar will ease off, yet staying at high-ish levels as a growing USA will demand commodities, buy Chinese products and indirectly help Australia.

Back in Australia

The Aussie economy is on track for three per cent growth next year but it won’t happen all year. The stronger growth comes in the second-half and it was good to see that the Reserve Bank is expected to ease up on interest rate rises for early next year.

Clifford Bennett from Herston Economics has the Aussie S&P/ASX 200 hitting 5600 next year, which would be a solid rise given that we’re at 4670. It could be a bit ambitious, but the guys at Mac Bank are around 5300 or so, which would still be a good year.

Global markets

My focus next year will be to look a bit harder and longer at the UK and Europe. They have been economic basket cases this year, but if they can lift their economic game then it will augur well for the global economy.

Japan has a lot of work to do and if this economic giant can surprise on the better-than-expected side, then all of my wishes will come true. However, the Japanese have been disappointing for so long I won’t be investing in any Japanese funds.

Great stocks

Picking great value stocks that have plenty of upside will be a driver of many of my articles next year but even buying an ETF and playing the overall index for a double digit gain could be an interesting play.

Let me assure you of one very important thing — if I had a good reason to be negative or a pessimist I would be that. My optimism is a conclusion from analysis and is not a function of my everyday, glass is half-full, sunny disposition.

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.

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Published on: Friday, December 18, 2009