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Good oil news

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by Peter Switzer

Wall Street raged on with the bulls overnight and it was the good oil news, again, that has determined the direction of the market. It came in the form of OPEC suggesting it would increase supply to offset the supply problems because of Libya.

But it was not just better tidings out of the Middle East that got the buyers out in force. There was some positive news out of US banks, which will undoubtedly help our share market today.

US market overnight

The positive fillip came from Bank of America suggesting that it could “return to normalised earnings by 2013”, which is a lot better than expert analysts had been tipping.

The Dow was up over one per cent, or 124 points, to 12,214, while the S&P 500 was up 11.69 points, or 0.89 per cent, to 1312.81. Advances beat decliners three to one and that’s a solid indicator that buyers, while a tad spooked by the potential oil crisis, remain committed to equities for 2011.

Another important milestone will be powering investors to beat the wall of worry and that’s the fact that the US has now passed the best GDP-level in recent years, which hails back to 2007. So, they’re no longer in recovery mode but in the expansion phase.

Seriously, if it wasn’t for the problems in North Africa and the Middle East, with the latest job numbers in the States and the general collection of good economic stats for the US, I reckon we would be off to the races big time.

That’s why the statement from Bank of America about normalised earnings is such a positive flag to wave as it also suggests that many of the banks would get back into the dividend-paying game again.

At the moment, investors have been punting on making capital gains on their bank shares but a normal bank share should do both.

Potential for shares surge

Good news in the States — both economic and market — will eventually help the greenback and weaken the Aussie dollar and that will help our shares.

Since the March 2009 bounce back in shares, our stock market is up around 63 per cent. However, the S&P 500 in the US has come back 95 per cent, the Nasdaq 86 per cent and the Russell 2000 small caps index has staged a 120 per cent turnaround!

If we get over this oil country contagion concern, I think we have potential for a big surge in shares, however, there are lots of ifs and buts in that analysis.

But it is still the ‘good oil’.

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: Wednesday, March 09, 2011