Business News

Market stirrers

| More

by Peter Switzer

After some pretty bad days at the office for Wall Street and even worse ones for the local stock market, the Yanks went positive this morning with the Dow up 118 points to 10,186 points. This makes me want to tell you — don’t believe the doomsday merchants — at least at the moment.

Sure, there’s a lot of correction talk around at the moment but this is what short-term traders and many fund managers care about. Their key performance indicators mean they ride up a market for capital gain and then take profit, which pushes the market down again giving them scope to buy in again.

Good news spooks

Last night on my first program for the year — SWITZER on Sky News Business Channel — Martin Lakos from Macquarie Private Wealth argued that many of the things that have been spooking the market are actually good things.

Obama putting more rigour into US banking regulations will mean there is less long-term potential for another dumb sub-prime problem or something like it, to emerge to threaten the global economy.

Meanwhile, the China pullback on bank lending will stop economic growth getting out of hand and breeding an inflationary bubble. Sure it will hurt the likes of BHP-Billiton’s share price short-term but will sustain the Chinese economy, so it will be stronger for longer. This is good for the long-term BHP share price.

Economy and earnings are key

Short-termism takes you away from the key drivers of a stock market — the health of the economy and the earnings of companies. And these drove Wall Street up overnight.

Good global manufacturing news was added to the best Institute for Supply Management reading for manufacturing since August 2004. This follows an economic growth number for the December quarter of 5.7 per cent, which is huge, and consumer confidence has hit a two-year high.

Meanwhile, company earnings continue to impress with ExxonMobil reporting its profit fell 23 per cent but still beat analysts’ expectations. This coincided with the oil price going higher to close just short of $75 a barrel.

The run of data and company earnings will determine whether a correction comes but I suspect we will see rising markets followed by profit-taking periods, which will then give way to further buying.

2010 target

Lakos told me Macquarie thinks the S&P/ASX 200 index will see 5,600 in 2010.

As of yesterday, we are now at 4,524 and so that means, if they are right, we could see a 23 per cent gain for those brave enough to doubt the market doubters. And this figure leaves out dividends, which tends to be 50 per cent of one’s return from holding shares long-term.

Watch this space

I will admit that there are still some scary issues out there linked to debt and global funding but the recent President Obama address to Americans indicated that budget deficits will underwrite job creation in the US in 2010 and that augurs well for the stock market as well.

The problems that stem from this spending lie out there in the future but worrying about that too early could cost you big time. The best advice I can give to Nervous Nellies who fear another market crash is — watch this space and my Sky News Business Channel program each night.

As I always say: “You don’t get rich in a day but you do build your wealth each day”.

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.

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.

Published on: Tuesday, February 02, 2010