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Don’t panic! A sell-off was always going to happen

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by Peter Switzer

It was always going to happen – first, the Europeans would do something to worry investors and there would be profit taking by short-term players after such a strong run-up in stocks since 5 June. The world is simply not ready for an unbridled boom because there are still some issues to worry about.

Last night was a case in point with Spain not showing enough commitment to the European Central Bank’s (ECB) conditions the Government has to meet before the central bank will buy its bonds. In fact, so far Spain has not asked for a bailout, which is the starting point in the rescue process conducted by the ECB.

If the country does not play ball it will face very high borrowing costs and be back where it was before Mario Draghi, the ECB boss, proclaimed “whatever it takes”.

The FTSE was down 0.37 per cent, the French CAC 40 was off 0.78 per cent while the German DAX lost 0.11 per cent. However, there is a view that while a sell-off by short-term traders is to be expected – 7-8 per cent has been suggested for the Dow, which looks too bearish – the more longer term players such as fund managers will stay in the game as there does not seem to be pending bad news out there, unless you are worried about the US election and the fiscal cliff. That said, the latter is an issue for December and there is a general feeling that not even the stupid Congress will let the US economy go over the cliff into a certain recession.

My two fears are the Congress and European leaders, and I really hope they behave and act like grown-ups!

Meanwhile, data just out shows US factory output in the state of New York fell to the worst level in three-and-a-half years, but this was to be expected and it explains why the Fed went for QE3.

For those who want to know the Wall Street scoreboard, the Dow gave up 40 points or 0.3 per cent to end at 13,553 while the S&P 500 also lost 0.3 per cent, showing there are no early inclinations for stock players to turn tail and run.

I think there is more upside for stocks but these levels have to be tested. Frankly, if there is another sell-off, I will be a buyer of companies I like. I have been doing this for three years and I have been recommending this to my regular readers and financial planning clients – especially great dividend payers as they give you two ways to win via capital gain and income.

Watch more from Peter on SWITZER TV.

Published on: Tuesday, September 18, 2012

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