Europeans worry me, Yanks don’t
by Peter Switzer
Talk of another correction is sneaking into commentators' columns but the bull rally continues with US earnings surprising on the high side, underlining that a disaster is coming fraternity are wrong for now.
On Wall Street shares went to a 19-month high and they had put in eight weeks in a row on a rise by last week’s close.
The S&P 500 was up 9.02 per cent for the year but the small cap Russell 2000 is now up 18.1 per cent!
But question marks over the Greece bailout still worry the market and are containing enthusiasm. The Europeans have shown that cooperation is not their strongest suit making a mockery of the name of their so-called European Union.
Meanwhile, the Goldman Sachs matter remains in the headlines but it’s not a major market mover.
News of the week
Here are the big facts and views for the week that grabbed me:
- The share prices of one-third of S&P 500 companies were at or better than 52-week highs.
- Cyclical stocks – energy, industrials and consumer discretionary – last week did better than defensive plays – telecom, healthcare and consumer staples. This is a good sign for the rally.
- New home sales in the US were up 26.9 per cent in March – the largest annual jump increase in around five years, but a first-homebuyers' tax credit helped.
- There was a good homebuilders’ report and durable-goods orders statistic as well.
- And oil went over US$85 a barrel as a reaction to stronger looking US economy.
- Also American Express, a good indicator company for the US economy reported strongly.
- On the local front, four economists interviewed in the AFR all see the cash rate of interest heading to five per cent or higher by year’s end. They believe in the strong growth story ahead and this will also take the budget deficit down. It was all good news except for interest rates!
Ahead this week in the US, companies such as Texas Instruments, Ford, 3M, US Steel and plenty of big names will report. Economically, the Fed announcement on rates mid-week, and then GDP and consumer sentiment on Friday, will be closely watched by big market movers.
- March Consumer Price Index on Wednesday.
- March house prices on Thursday along with private sector credit.
These results could affect the RBA’s thinking on interest rates for the May meeting.
What I am most worried about? It’s not the troubles in Greece so much as the way the Europeans are dealing with it.
Finally, my favourite fact for the week is the Dow Transports index is at new highs this week on strong earnings from railroads. On top of that, AMEX telling us that Yanks are using their fantastic plastic cards again, seeing goods being shipped big time, makes me a bigger believer in the all-important US economic recovery story.
Remember this old rule – your trend is your friend until it bends!The US recovery, for the time being, is a “Never bending story!”
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Published on: Tuesday, April 27, 2010blog comments powered by Disqus