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Huge week ahead ... And I'm not talking about the Cup

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by Peter Switzer

Most Australians might think the Melbourne Cup or the Reserve Bank’s interest rate decision are the big events of the week but two pretty widely anticipated US revelations could have more material impact on our hip pockets, our jobs and our futures.

The first is the FOMC meeting, which will tell us what the US money supply will be pumped up to under the now famous QE2. And then there’s the outcome of the US mid-term elections which will change the presidency of Barack Obama, if the Republicans take control of what bills are passed or not.

New cliché

But wait there’s actually more. The end of October and start of November also signals the last day linked to that cliché, 'sell in May and go away'. This had a lot of meaning until the September bounce of the US stock market, which continued in a positive vein in October.

Also, this is the end of the tax year for mutual funds and so after they rule off their books, driven by the end-of-year tax considerations, this can be a restart of investment decisions for the fund managers as we come into the best six months of the year — November to April.

The cliché for this should be: 'Buy in November and stay still to April'.

Market movements

As a lead-up to the week, the Dow was up 0.04 per cent and the S&P 500 index lost the same amount. Markets are marking time until the big events clarify the investment plays.

The Dow is now up 6.62 per cent for the year while the S&P 500 is up 6.11 per cent, but we are lagging here with the S&P 200 down 4.18 per cent.

For the month, the Dow is up over three per cent and has put on 330 points. You would have to go back to 2006 to top this effort. I reckon there’s plenty of anticipation of QE2 and a Republican win in the elections, but if this doesn’t work out, then the market could sell off. However, if the results are better-than-expected, then the rally picks up pace.

Data watch

By the way, this week is also big for company reports and economic data with the October jobs report bound to be closely analysed. Also, company reporting has helped the rally with 77 per cent of companies so far beating analysts’ expectations.

The US economic readings remain mixed with the Reuters/University of Michigan consumer sentiment index falling but the Chicago Purchasing Managers' Index for October rose and beat expectations. Meanwhile, economic growth came in at two per cent, which was about what the experts tipped.

For us, we will get the Cup result and rates decision on Tuesday. If our banks want to give us a surprise rise we should know by Wednesday and that’s when the US election is held. Then the QE2 announcement comes on Thursday our time. This is followed by the jobs report on Friday in the US.

As you can see, this is a HUGE week!

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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.

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Published on: Monday, November 01, 2010