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BHP on Wall Street

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by Peter Switzer

Wall Street reacted well to a good industrial production numbers and BHP-Billiton’s takeover offer for Canadian fertiliser business Potash for a cool US$38.49 billion dollars!

Overall it was a great day at the office for Wall Street with the Dow up 103.84 points or a little over one per cent to 10,405.85 and the S&P 500 up 1.22 per cent to 1092.54, taking the index through an important technical level of 1079.

Data overnight

The market was also helped by some encouraging earnings reports and it was also good to see that stocks that are linked to optimism — materials, industrials and consumer discretionary — all did well.

Not only did industrial production numbers beat expectations — a one per cent rise against a 0.7 per cent expectation — but capacity utilisation rose 5.7 per cent to 74.8 per cent, which has to be a solid sign that the double dippers out there are exaggerating the weakness of the US economy.

For those wondering why the market seems locked in a trading range some analysts blame the upcoming mid-term elections in the US. History shows that in the past 17 elections the stock market has had a strong bounce, wait for it, 16 times.

There were good profit reports from Wal-Mart, Saks and HomeGoods. Others gave mixed messages — some good, some weaker than hoped — but once again none pointed to economic disaster ahead. In fact, some of the outlook statements were positive.

For deflation worriers, producer prices rose by 0.2 per cent in July, once again showing the doomsday merchants are wrong.

BHP not panicking

Finally, BHP has offered $US38.49 billion for Potash but experts say it will have to pay more. Potash was not looking for a buyer but it's another good sign that the board of BHP is not panicky about the future and in fact is showing long-term investors what the strategy should be — buy great assets when prices are depressed.

For advice you can trust, contact Switzer Financial Services.

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Published on: Wednesday, August 18, 2010