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Grin and bear it! It looks OK...

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by Peter Switzer

Wall Street did remarkably well to stay in positive territory considering the latest US GDP numbers disappointed but you could hardly call the eight-point rise to 12,402.76 convincing. But the fact there wasn’t a significant sell-off convinces me that only a leftfield, X-factor, black swan knockout blow will drive share prices down aggressively.

Let’s look at the weaker-than-expected economic news overnight.

First, the second look at GDP growth for the March quarter showed up as only 1.8 per cent. Second, the latest initial jobless claims rose when the hope was that they would fall.

Combined, these two pieces of information marry in well with the latest run of economic data from the US, which says the economy is OK but not going gangbusters.

Against this, the most recent quarterly look at company profits told a story of a strong corporate sector and so there remains good reason to be cautiously positive about the US economy for the remainder of the year.

The Fed will watch this data flow and it could change their attitude to the ending of QE2 and the need for a QE3. I suspect there will be no QE3 but if the economy remains soft, there will be a delay to the first raising of official interest rates.

Good news

Two interesting positives out of last night: the Nasdaq gained 21.54 points, or 0.78 per cent, to 2782.92 and the fact that the VIX or fear index is at a low reading of 16.

Now this is with softer economic data, the imminent end of QE2, fights in the US Congress over deficit and debt limits, post-Japanese disaster, a new virtual war in Libya and all of the anxiety surrounding Greek indebtedness as well as the rest of the European debt drama.

That’s why I say it will take a big earth-shattering event to convince dip-buying investors to turn tail and run.

Choppiness ahead

One last piece of news: Goldman Sachs took its end of year forecast for the S&P 500 from 1500 to 1450 and given that the index is now at 1325, that’s an expected 9.4 per cent gain for the rest of the year.

I expect choppiness for a few months and then a big finish to the year and if the Aussie dollar falls as the US dollar improves in value, I would expect a really good finish for local shares.

So we can grin and bear it now and hopefully smile and love it at year’s end.

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: Friday, May 27, 2011

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