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It's all good!

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by Peter Switzer

History has always told me that when someone tells you “it’s all good” there tends to be a little bit of exaggeration and some important stuff can be left out. That applies equally to Wall Street and the US economy and that’s why I say when it comes to these important drivers for the Aussie stock market — “it’s all good!”

Up, up and away

The Dow Jones finished on Saturday, our time, with the strongest spike in the index since 2000. It smashed through the 9000-level and is up around 39 per cent since 6 March, but only 3.6 per cent for the calendar year. The S&P 500 is up 8.4 per cent.

The Nasdaq has put on 24.7 per cent!

Why? This tech-laden index has lots of companies that have big overseas exposure and are not just US-economy dependent. Lots of these companies sell to China, India and Australia — economies where the GFC has not hit as hard as the USA.

Surprise results

In a surprise, the Microsoft and Amazon earnings stories disappointed the market late last week. Microsoft shares lost 8.3 per cent while Amazon dropped 7.9 per cent.

On the other hand, American Express came in better than expectations but its revenue was under forecasts. But, as they say, “it’s all good.”

In another surprise the Reuters/University of Michigan consumer sentiment number dropped from 70.8 last month to 66, but as I say, “it’s all good.”

Sectors gain

In genuinely good reports, Black and Decker projected a positive outlook and its shares went up a big 10 per cent. CNBC pointed out ten out of ten important S&P sectors were higher, with materials the trailblazer, rising eight per cent. “Energy and utilities rounded out the top three as oil gained more than five per cent to settle at US$68.05 a barrel. Consumer staples were the worst performer, along with financials and technology,” the report revealed.

A star performer was Caterpillar rising close to 24 percent, but all the stars align for this company. It’s an exporter selling to the likes of China and every government in the world, including ours, and is committed to spending on infrastructure.

How high can it go?

One notable change in attitude from those who expected a significant sell off is that they still expect a pullback but think the market will go higher.

Art Cashin, the director of floor operations at UBS Financial Services, who regularly talks to CNBC is in this group.

"The problem is, we're overbought now and we'll probably have a pullback — next week, I think," he said.

And how high can we go?

"[Dow] 10,000 is not out of the realm of possibility. A little above 1,000 for the S&P," he added. "The rally is going to continue."

But he thinks in a month or so from now, we could wake up to see a sudden reversal.

This week in reports

Ahead this week the Yanks have new-home sales, the Case-Shiller home-price index, consumer confidence, durable goods, Chicago PMI and GDP. There will also be a swag of company earnings.

So the big question remains: Can the rally continue? I have one thing to say — “it’s all good!”

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, July 27, 2009