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Market signs are positive

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by Peter Switzer

Regular readers might remember when I advanced the proposition that the US recovery might not be V-shaped, nor U-shaped and I ruled out a W-shape or double dip with a second recovery, but it could be a square root recovery.

That means the economy dives then recovers and then it tracks sideways. Now a mathematician would draw the sideways bit horizontally straight but I argued it would be sideways but sloping upwards.

This would be a square-root sign drawn by someone in a hurry — possibly because they’re too smart to be neat!

Fear factor frenzy

Anyway, that’s what I reckon we’re seeing and it explains why the stock market in the US has been up on most days in the month of September. A couple of weeks ago the bears were arguing double dip recession so much that mainstream TV was even talking about it.

Of course, mainstream TV would love the fear factor plus the alliteration of 'double dip'. I learnt this in my early days at Triple M as their business and political editorialist, that if you could hit the listener with things such as 'a sensational sex saga' or 'parasitic political paralysis' you would catch someone’s ear much more easily.

No double dip

Anyway, the case against a double dip recession has been building slowly with economic data. While not flash, it’s still coming in better than expected or at least not as bad as expected.

It is my contention that we will end the calendar year up on the stock market and the capital gain, which could be small on an historical basis, plus the dividend payments will be as good if not better than the one-year rate of tying up your money in a fixed deposit.

Data watch

On the latest from Wall Street and the Dow has ended up eight out of the past nine sessions and add this to the last very good corporate reporting season in the US and there are two good reasons to be a little bit optimistic. However, a really bad economic reading or a dumb debt decision from Europe — whoops there’s some alliteration — could rock this nice market move forward.

Of course a big boost came from strong Chinese economic data. Retail sales was up over 18 per cent in August showing the Chinese seem to be better shoppers than the once unassailable US consumer.

Industrial production was up more than 13 per cent and that’s why the Oz dollar is more than 93 US cents.

The Dow is up 5.3 per cent for September so far, while the S&P 500 is up 6.9 per cent. And what about the Nasdaq, up a whopping 8.1 per cent!

August was a down month but September — historically the worse month — is now a real upper.

Level watch

For techies, the S&P 500 is now at 1121 and was above its 200-day moving average. That is also a good sign.

The next level to watch is 1130 and it will be tested with a raft of economic data due out this week. And while these will be important I suspect the big market mover will be the mid-tern Congressional elections in November. Remember, the market has moved higher 16 out of the past 17 times and it probably says something about the value of certainty over uncertainty.

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: Tuesday, September 14, 2010