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Can we go higher?

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by Peter Switzer

This has turned out to be an October to remember, especially for the Yanks with the Dow Jones index up around 12 per cent, while we have out on around nine per cent. But this raises the question — are we in market-testing territory?

The Yanks could actually finish with the biggest monthly gain in history and that has to set up the situation for profit taking. But news flow will determine what these stock markets can achieve and going higher can’t be ruled out as they have been beaten up so much this year.

While the Dow is positive for 2011, our S&P/ASX 200 index is still down 8.5 per cent and that provides scope for more upside. This will rest on European and US politicians making the right noises with the economic news in the US as well as in China remaining positive.

Over the weekend, Wall Street saw the Dow end up only 22.56 points, or 0.18 per cent, to 12,231.11. The S&P 500 index was virtually flat at 1285.09.

The big month has to be put down to the EU deal but now the questions about it are starting to emerge, as you would expect, and profit is being taken, as you would expect.

Regular readers know I have punted on an EU deal and better US economic data, supported by the good US company reports, creating the buyers for an end-of-year rally. Now only dumb politicians will change my thinking.

CNBC quotes Thomas J. Lee, who is chief US equity strategist at JPMorgan Chase. This is what he said for the rest of 2011: "We see a strong foundation for an equity rally."

One piece of good economic news came on the consumer sentiment front. For October, it was reported at 60.9, which was miles higher than expected.

Locally, we will be focused on Tuesday’s Melbourne Cup and the possible interest rate cut, which is overdue, but in the USA they also have a central bank meeting on rates and the all-important jobs report. Add this to a string of important company profit reports as well as whatever curve balls can come out of Europe and it’s still game on for the market this week.

Provided nothing stupid happens out of the US Congress and the EU Parliament, then I am still punting on a nice finish for even local shares as we head into Christmas.

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, October 31, 2011

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