Business News

Good omens

| More

by Peter Switzer

The Yanks are seeing their stock market grind higher and that’s likely to be the trend for most of this year, despite the likelihood there will be some dramatic moments when stocks slip.

The Dow was up 27.57 points or 0.2 per cent to finish at 13,534.89 while the S&P 500 put on 0.11 per cent to close at 1472.34.

The good signs

So what were the good signs overnight that have reinforced my current optimism?

First, Dennis Gartman, a renowned market newsletter writer, whose judgment I respect, was interviewed on CNBC and his summary was “stocks will go higher”.

He argues that US company balance sheets are in good shape and so are US consumers. I think the same applies here in Australia. Put this together with low interest rates and people like the European Central Bank’s Mario Draghi telling everyone that a “positive contagion” is likely in 2013. and it paints a nice picture for stock players.

Secondly, overnight the Dow Transports index hit the best level ever and it’s now up 15 per cent in two months.

You might ask — so what? But this is an important forward indicator as it says the transport companies that move US products are showing very strong signs of growth.

As a consequence, when this index does well, the overall stock market index responds as this is driven by the kinds of companies that use trucking companies.

Another good omen is the VIX or fear index getting to a reading of around 13. Sure some experts say this can be a bad sign that investors are getting too cocky and it can come before a market sell-off. It also can be saying, however, that the reasons to buy stocks are good compared to last year and the year before. I think the latter is more relevant now.

Among the data

Adding to my positive snapshot, retail sales were up 0.5 per cent in December which was huge considering the fiscal cliff black cloud that hung over the economy in that month. By the way, the expectation was only a 0.2 per cent rise.

Also, US house prices are showing enormous improvement, which will underpin a more confident consumer and that will bolster economic growth.

On the downside, manufacturing in New York fell again, but it has had some problems such as a hurricane and fiscal cliff issues. The overall manufacturing reading for the USA as a whole from the Institute for Supply Management has been more positive.
I look forward to the earnings reports from US banks later this week. These could add to my positive painting for stock market players.

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.

Watch more from Peter on SWITZER TV.

Published on: Wednesday, January 16, 2013

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Ignore stupid recession headlines

So what happens this week?

Suddenly, Wall Street went positive – what just happened?

Be warned – things will get better!

News, news, news: the good, the great and the unimportant