Business News

Market down but not spooked

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by Peter Switzer

Wall Street looked like it was heading for a big triple-digit loss for the day after the opening appeared pretty disastrous with Greek post-election concerns and fears that the country would be kicked out of the eurozone, which spooked market players. However, as the day proceeded, the losses were pared which continues a theme that for every seller, hedge fund and market manipulator there are key investors who believe stocks represent good value.

Now they could be proved wrong but unlike last year, bad news from Europe isn’t easily used to send this market down.

The Dow ended down 97.03 points or 0.75 per cent to 12,835.06 while the S&P 500 index was off 9.14 points or 0.67 per cent to 1354.58.

2011 vs. 2012

An interesting test for the Aussie market yesterday, post-Budget, was that the fiscal commitment here to a budget surplus had little impact on the market. It would have been good, however, to see what might have happened if world markets were not preoccupied with Greece and the possibility that left-wingers could hold the whip hand or else new elections might have to be called!

What turned around the day was the granting of 5.2 billion euro in emergency aid from the European Financial Stability Facility (EFSF) and this is a classic difference from last year. We’re seeing swift action to deal with issues instead of procrastination and deliberation, which created confusion for investors.

Sure there’s still anxiety and that’s why many investors will not part with cash at the moment for stocks and really who can blame them?

Spain is also a worry with Spain’s market index, the IBEX 35 hitting a nine-year low on bank concerns and their exposure to property developers.

US economy

Against these concerns the health of the US economy and corporate balance sheets are helping to contain negativity. Wholesale inventories rose by less than expected in March which could be a good or a bad thing. Good if it is driven by sales that left businesses short of stock but bad if the demand for stock is petering out. It’s always one indicator that confuses economists.

Meanwhile demand for mortgages rose for the third week in a row and that’s a plus but none of these revelations will KO the worries about Europe. And our Budget is in the same situation.

Rate cut pressure

For me, the dash to destroy the deficit in one year will put pressure on the Reserve Bank to cut interest rates and that will help stocks via lower borrowing costs, a lower dollar and eventually better business and consumer confidence.

If Europe can look stronger and more credible, it will set us up for a big finish to the year but that remains a big “if” that will dog the stock market over the always testy months of May to October.

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: Thursday, May 10, 2012

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