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Can we keep riding the good times?

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by Peter Switzer

It has been a great start to the year with the Dow Jones index up over six per cent and the S&P 500 just under that level, while our S&P/ASX 200 is up 2.6 per cent but can this optimism last?

We have had a dream run but could it turn into a nightmare?

The good news kept rolling with Egyptian President Hosni Mubarak resigning and that will help our market today, as it did Wall Street over the weekend.

The CBOE VIX or fear index at 15.69 is a good sign for now and 10 weeks out of 11 of gains is great old news but what else is out there to excite or spook investors?

In other good signs that US economic growth is real, the Yank’s trade gap has seen the biggest percentage rise in 10 years and that’s a sign that imports are feeding the growth of GDP. And it comes as the Thomson Reuters and the University of Michigan consumer sentiment survey hit an eight-month high in February.

The outlook

And ahead this week there’s a raft of economic data on inflation, retail sales and industrial production which all should be positive for the more believable US growth story. All they need is jobs and the Dow will take out the 13,000-level and head towards 14,000!

And increasingly more US analysts are tipping the S&P 500 at 1,400 by year’s end. As it is now at 1329 that’s only a five per cent (or so) gain, which looks very achievable.

Expect the unexpected?

At the moment money is rolling out of the bond market in the US, which is creating new bulls steaming for the stock market but a pullback is on the cards, however it could turn up later than some think, especially if Egyptian-like crises can be settled without big market collapses.

My feeling is that the sum total of the knowns all point to a rising market but it could be an X-factor or a left-field event, which are by definition unexpected, that could knock us off this bull market horse. However, I think even if this happened we would get back on and keep riding for the rest of 2011.

Tally ho!

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, February 14, 2011