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Bull market has long legs

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by Peter Switzer

With May looming, a month that has given rise to the cliché — “sell in May and go away” — which I am adding to the wearing out of, the question is will it happen this year?

Last year the cliché worked out and buyers didn’t come back until September but they came back with deep pockets in the US.

On Wall Street

Wall Street ended higher over the weekend but was down for the second week in a row, while our S&P/ASX 200 was down for the first time after four positive weeks.

But my main focus is America as the maker or breaker of stock markets this year.

To date, the Dow is up 6.6 per cent for the year, while the S&P 500 is up 4.9 per cent.

And the VIX or fear index was only at 15.44 and that’s a sign that US investors are not shaking in their boots. That’s around a four-year low!

This is despite massive government debt, housing foreclosure problems and question marks over whether Obama’s planned deficits will get funding from Congress.

And it comes as profits season has not been over-impressive with the likes of Bank of America, Google and JPMorgan disappointing the market.

This week is a big one for earnings with some big Dow Jones names playing show-and-tell with their profits.

Another worrying issue was a spike in Chinese inflation which pushed oil prices higher but against this US consumer sentiment ignored the higher gasoline prices and became more confident!

Clinton’s reminder

Bill Clinton once reminded everyone that “it’s the economy, stupid” and the US economy is still looking good. And this is despite Standard and Poor’s downgrading its outlook on the long-term sovereign credit rating for the US to negative overnight.

Over the weekend, industrial production figures and the Empire manufacturing survey for New York both pointed to an economy on the up.

Another good sign has been productivity readings which should lead to job hiring and that’s what the Yanks need.

It will justify the big deficits and give incomes out of which taxes will be paid to bring those deficits down.

By the way US inflation came in better than expected with core inflation in March up 0.1 per cent.

This news is so good it’s more than a bear can bear!

But wait there’s more.

The bull market

On my program on Sky News Business Channel, RBS Morgans’ chief economist, Michael Knox, argued that the Yanks will have to face up to their deficit/debt challenges over the next five years and he believes they can do it but it will hit the disposable income of the average American.

So I asked how long can this bull market last for? His answer was: “Three years.”

Meanwhile, Ron Bewley, who founded Woodhall Investment Research and has had a good track record using his econometric methods to predict market direction using such measures as volatility or fear indexes, says we are currently in a favourable environment for investors and only a shock curve ball could change his assessment.

There you are — that’s the long and the short of it — and once again they both look like more than a bear can bear!

I only hope my experts are on the money.

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: Tuesday, April 19, 2011

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