Market to go higher or lower?
by Peter Switzer
The next three weeks will tell us two things that will determine whether our stocks go up or down. First, we will see if US companies’ earnings have matched the stronger-than-expected growth of the American economy. Secondly, we will be given a snapshot on the future with companies’ outlooks being the basis for investment in coming months.
It comes when a minority of analysts are tipping the usual Apocalypse Dow with either 2011 or 2012 nominated as the year when it will all go pear-shaped.
Chris Selth, the co-founder and chief investment officer of Five Oceans Asset Management, whose fund is based on 50 to 60 overseas stocks is not phased by international developments and is focused on companies that will do well in what he sees as a positive international economic environment.
In the States, Michael Thompson, managing director of Standard & Poor’s, is tipping the earnings season will again bring growth over in the double-digit area, despite rising fuel costs.
“Most of the cyclicals, which you would think are hurt the most by higher energy prices, are actually advancing,” Thompson told CNBC.
And get this, he expects to see nine more months of this type of earnings growth. That’s very bullish!
If this guy is right, it’s a strong argument to be a buyer of the dips. However, other analysts think we’re heading to a market top, at least for a while.
Buy the dip?
Some experts believe that what Fed boss Ben Bernanke does with quantitative easing will determine the direction and the strength of the market going forward.
The so-called QE2 is expected to end in late June and the focus will be on whether US interest rates will rise. This could send the market down and that’s when you have to ask yourself — do I have the courage to buy this dip?
CNBC says around 70 per cent of all S&P 500 companies beat profit expectations in the last quarter of 2010. This will be one test for the first quarter of 2011 over the next three weeks.
Running with the bulls
The Apocalypse Dow bears will point to the price of oil, mounting debt and the US Government bond market (which Bill Gross of PIMCO — the biggest bond player in the world — is keen to short as it’s going to be a bear market) all saying the good times for stocks are over. Then there are the European debt problems, which could KO the optimistic outlook.
On purely economic and the quality of company balance sheets basis, this rally looks to have legs and it will be only a Black Swan or X-factor, which historically are hard to see, that could shock the bulls.
I am still in a Pamplona frame of mind — running with the bulls!
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.
Published on: Tuesday, April 12, 2011
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