Business News

Has Wall Street ruled out a double-dip recession?

| More

by Peter Switzer

The first week in September on Wall Street might become a week to remember with economic data gradually turning to the more positive as better than expected results emerged from US number crunchers. And this is certainly ironic as September, historically, is the scariest month of all.

That said, I made the point last week that to have a sizeable crash of the market you need shares to be at unrealistically high levels. Share prices are a long way from the boom levels of 2007 before the GFC rocked stock markets and brought with it recession for most Western economies.

Better than expected

The week was topped off when the US jobs report came in with some good news that excited investors despite the fact that unemployment rose.

By the way, I couldn’t believe the ABC radio reports which led off with “unemployment rose in the US”. The media’s preoccupation with the negative means they miss the big news story.

This is how the Saturday morning news reports should have run: “Wall Street’s Dow Jones index put on 127 points following a better than expected jobs report. While the unemployment rate rose from 9.5 per cent to 9.6 per cent, August non-farm payrolls fell by 54,000 instead of the expected 100,000 job losses. But more importantly, new private jobs rose by 67,000 when 41,000 expected. The case is building against the US slipping into a double dip recession.”

And that’s why our stock market should rise today unless some left-field event changes things.

By the way, the Yanks need 135,000 new jobs to stop unemployment from rising so they're not in the champagne popping region yet, but the report says the double-dip fear mongers were once again overplaying their hand.

Data watch

This comes on top of good manufacturing reports in both the US and China, which has helped the S&P 500 index rise 3.75 per cent for the week to close at 1104.5, which is well above the old resistance level of 1087.

On the negative side, the non-manufacturing or services reading from the Institute for Supply Management dropped to 51.5 in August from 54.3 in July. A reading over 50 means the sector is expanding but the pace has slowed over one month but that is no trend yet.

This week in the States, the focus again will be on the economy. Monday is a Labor Day public holiday and Wednesday brings the Beige Book, which is the Fed’s take on the economy across a whole lot of regions and sectors. This could excite the market either way.

November rate rise?

By recent standards, it will be a quite week for data.

Locally, the big market shifters will be what the independents decide, jobs ad today, the RBA board meeting which will leave interest rates alone on Tuesday and our jobs report on Thursday.

At this stage, I think interest rates could be on hold for the rest of this year but if unemployment keeps falling and inflation rises in late October, we could see another rate rise in November.

The economy is the key.

For advice you can trust, contact Switzer Financial Services.

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.

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.

Published on: Monday, September 06, 2010