Business News

Market stress relief is on the way

| More

by Peter Switzer

If the market’s reluctance to rise and its recent tendency to dive is stressing you out, don’t worry — there might be a stress relief market mover on the way. And if it works out, it could be the catalyst for the rally that lies ahead.

The promise of a market maker, which could, if the news is bad, be a market breaker comes as Wall Street finished flat following a disappointing report from FedEx, which regrettably trumped a very promising reading on industrial production.

FedEx actually made its earnings estimate and beat its revenue forecast but its outlook was losing some of its gloss. The company is seen as a good indicator for what is happening in the US economy.

Against this, industrial production numbers spiked, rising 1.2 per cent in May and even mortgage applications had a nice rise last week.

So, as you can see, the mixed messages continue to come in on the US economy but overall assessment has to be that good news is still clobbering bad news, or at least beating bad news.

Stress test

But the real clincher for the market going forward will be the stress tests on European banks that soon will be published. Last year when the Yanks did this it helped the stock market head higher and — if fact replaces supposition as well as speculation — we could see another leg of the rally kick in.

However, if the news is disappointing, it could spark a sell off. I’m sorry, but playing the market is a double-edged sword.

The European Central Bank will spit out the results in a couple of week’s time and Spain will be the first cab off the rank. Sure, there will be some bad news for some banks and governments might have to broker or force mergers but it will KO speculation based on rumour and innuendo.

Reuters reported that a European Central Bank Governing Council member, Yves Mersch, argued publishing the results of euro zone stress tests could help repair the crisis of confidence in the euro zone banking system. And I reckon he is absolutely on the money.

Economic fundamentals vs crisis of confidence

At the moment the European battle is between economic fundamentals, which are looking better and a crisis of confidence, which really needs a hell of a lot of shoring up.

A stress test shows that banks have enough capital to cope with the pressure when economic growth of respective economies demands money from banks to make it happen.

When these stress tests are done, and if they are better than expected, then when speculators like George Soros come out and say, as he did last night, Europe faces almost inevitable recession next year and years of stagnation as policymakers' response to the euro zone crisis causes a downward spiral, he might be ignored as the market manipulator many think he is.

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: Thursday, June 17, 2010