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Big test week ahead

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by Peter Switzer

It’s a big test week ahead with stock markets bracing for the end of April, which ushers in the month of May when history shows a lot of investors and professional traders head for the hills or the beaches with the US moving into summer. Meanwhile, locally on Tuesday we get the latest reading on official inflation and it has to be on the low side for the Reserve Bank to cut interest rates next month.

Australian stocks would benefit from two rate cuts this year and that’s what I think we need to turnaround confidence and possibly reduce the too-high level of savings that is eating into demand. AMP Capital Investor’s Shane Oliver believes higher unemployment is “baked in” but if we want to not be overcooked, we need to see some relieving rate cuts.

Meanwhile, in the US, there are conflicting views on what lies ahead and both came from two guys who I regard highly as commentators and whom I interviewed in New York when I took the Switzer program on Sky Business Channel to Wall Street at the end of 2010.

Art Cashin from UBS, who is the longest-serving broker on the floor of the New York Stock Exchange, told CNBC that he thinks he’s seeing déjà vu when it comes to the developments on the US economy and Wall Street.

He says the economy is showing signs of slowdown with jobless claims rising and what he calls “distribution days” where volumes pick up on days when the market dives. He also pointed out that last week, when options expired, is often the last good week before the May sell-off can start.

Against that, Bob Doll, the chief equity strategist at the world’s biggest fund manager, BlackRock, is a little more positive.

"The US economy is a bit stronger today than it was a year ago," he told CNBC. "Questions about the US economy or the European debt situation caused the market to stop going up, but I think we’ll resume the grind higher for the back part of this year.”

I am in the Doll camp but I think there are some big tests such as the French election result, the upcoming Greek election and bond raisings by the likes of Portugal, Ireland, Italy, Greece and Spain or the PIIGS.

For the record, the Dow put on 0.5 per cent to end at 13,029.49 but it’s up 6.65 per cent for the year while the S&P 500 is up 9.62 per cent for the year. This great start to the year keeps me cautiously positive that we have a good year ahead for stocks, despite the curveballs out there coming from Europe.

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, April 23, 2012

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