Business News

Dow to rise over 16%

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by Peter Switzer

Another good day at the office for Wall Street and the way things are playing out the Dow could be set to rise another 2300 points before questions start to be asked about how long this rally can go on for. And if that happens, the Aussie stock market will be stronger for longer than the doomsday merchants who have been wrong for four years.

More on why I advance this prediction later but for the moment let’s look at the ninth up day for stocks out of 10!

The Dow finished up 67.12 points or 0.49 per cent to 13,779.33 and if this 2300 happens then around another 16 per cent rise lies ahead.

The S&P 500 put on 2.25 points or 0.15 per cent to finish at 1494.81 with the psychologically important 1500-level not far off.

Good earnings news

Driving the market up is continuing good news on the earnings front in the USA.

CNBC notes that the Dow is up five per cent plus this year and could top the best January perforamnce since 1997 of 5.7 per cent!

Google, IBM and Netflix topped expectations, and while Apple did beat on earnings, revenue was slightly disappointing.

The economy also keeps delivering with mortgage applications rising, adding more support to the view that the housing sector is on a roll.

So what about the 2300 gain on the Dow, which I think will help our market keep rising nicely? Remember, we have to catch up a lot on the Yanks because our string dollar has slowed up the spike in stocks.

I expect as the Dow keeps climbing, the greenback will also start to gain strength and that should help us.

Return of the investor on the sidelines

OK, back to the 2300 gain on the Dow. Neil Hennessy of Hennessy Funds in the USA, pointed out on CNBC that the price to sales ratio on the Dow is 1.28 and the most it will rise to is 1.5. That’s about 17 per cent. In 2007 the price to sales ratio was 1.8 and so there is plenty of rising room there — 40 per cent in fact. He also argues that S&P 500 companies are sitting on $1.5 trillion in cash and there is so much cash on the sidelines, investors will eventually dump fixed income and chase stocks.

In fact, a few weeks back, the shift into stocks and equity funds out of fixed income was the fourth biggest in history for a single week.

It’s happening, and only a left-field event will rock this trend. That’s what I will be looking for, so watch this space. By the way, I think the threats of these shock developments are less likely in 2013 than 2012, and maybe 2014 and 2015.

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: Thursday, January 24, 2013

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