I will take any rally
by Peter Switzer
Another good day for stocks and even though I am a long-term investor betting on an end to this secular bear market, some time over 2012-13, this rally is still surprising me a little. The only good news is that US company news is better than expected and maybe you can throw in there that the Europeans have not spooked markets recently — which is a big achievement for those nincompoops when you think about it.
There is growing support for emerging economies and a lot of smarties are betting that China comes back stronger in the second half of this year. The Aussie dollar now at 104 US cents is a pointer to this trade, but this seems a little at odds with the trashing of BHP and Rio this week.
If China comes good these two companies will be beneficiaries in the medium term at the worst and possibly in the shorter term as well.
Wall Street overnight
Overnight the Dow was up 34.66 points or 0.27 per cent to 12.943.36 while the S&P 500 put on 3.73 points or 0.27 per cent to finish at 1376.51.
And this was despite disappointing economic news, which included a big jump in weekly jobless claims and a 5.4 per cent drop in home sales. The improving US home market has been a plus that I have liked to see recently.
The fact that bad economic news is being shrugged off is intriguing.
Can the optimism last?
So, why the optimism and can it last?
First, 65 per cent of S&P 500 companies have reported and have beaten expectations on earnings, though 56 per cent have failed to live up to revenue expectations. Companies are still cutting costs to make their profit forecasts and that explains the lack of improvement on the jobs front.
Second, US traders who determine the Dow and S&P 500 are hopeful — very hopeful — that the Fed will opt for QE3, which looks likely and this has powered optimism lately.
Third, I think there are plenty believers in the China comeback story and the ability of the emerging economies to grow and keep the global economy pretty buoyant.
Fourth, bond yields in Europe are coming down and these are a big trigger for optimism or negativity.
Europe a concern
Against this, Europe still remains a black cloud that could rain on this parade. I do have long-range market forecasters becoming more confident that this rally can be sustained but I still have my doubts. However, I am less inclined to see a big sell-off like the one we saw in August and September last year.
If I’m right then we could be in that period where the worst of this GFC mess is being gradually put behind us but I have to say I’m guessing. That said, no one rings the bell for every investor when the bull market starts and the bear market ends — pity that.
Anyway, it’s a rally and I’m happy to cop it sweet!
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.
Published on: Friday, July 20, 2012
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.