Dow off the canvas
by Peter Switzer
You were warned and I take no comfort being right but September is the worst month for stock markets and history again is having its way. The numbers experts remind us that this is the worst three starting days to a month since October 2008 when Lehman Brothers fell over. However, Wall Street did stage a rally after being down more than 300 points!
The Dow, the key index, ended 100.96 points, or 0.9 per cent, lower to finish at 11,149.3. The S&P 500 gave up 8.73 points, or 0.74 per cent, to close at 1165.24.
In simple terms, the bad night at the office was caused by Europe but helped by better-than-expected economic news in the US. Europe has the capacity to make the next two months of trading very volatile but the US economy could set us up for a better end to the year as I suspect they will avoid a recession, which would excite a beaten up team of investors.
European banks are a worry in the US but some of this might be overdone with David Murray, the chairman of the Future Fund and former boss of the CBA, telling me on my SWITZER program on Sky News Business that European banks’ exposure to European governments is exaggerated.
At the same time, Fed chief Ben Bernanke says the US banks’ exposures to European banks is manageable. So, maybe we are selling on the unknowns and that makes sense but it does set us up for a potential rebound if we get some better news out of Europe.
Right now the bank concerns have driven European shares to a two-year low. There are worries over whether Italy can deliver its fiscal austerity package.
And there is an important German court ruling coming up overnight which will say whether Germany’s involvement in the European bailout measures are constitutional. A ‘yes’ there could be good for stocks but it does look very messy, doesn’t it?
Looking for good news and the Institute for Supply Management reading for the services sector came in better than expected.
“The economy is weak, but it’s not right not slipping into recession and that’s what this [report] confirms for me,” said Brian Wesbury, economist at First Trust Advisors. “The stock market is extremely undervalued today and if we don’t fall into a recession, I think we can have a very powerful snapback in the second half of this year.”
Right now it is hard to be an optimist when Europe is a big unknown and our investments are in the hands of European officials who have shown themselves to be massive underperformers — they even make US politicians look half-decent!
On that subject, President Obama releases his jobs package on Thursday and that could be a market maker or else it could be ignored! I’m hoping for the former.
Finally, the late rally on Wall Street was like a raging bull boxer getting up off the canvas and it tells me if Europe can come up with a credible solution — a knockout blow — we can rally from these low levels … but that’s a big ‘if’!
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Published on: Wednesday, September 07, 2011
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