Business News

Market up – where’s the cliff?

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by Peter Switzer

With another day on Wall Street where investors punted against a negative outcome from the fiscal cliff negotiations on Capitol Hill in Washington, the question is — what’s going on?

In simple terms, just about everyone believes that a deal will be struck in Congress, and so they are buying stocks now to avoid the post-deal rush. Of course, this could set up the market for a buy the rumour, sell the fact situation, so you have to be careful.

All of this was helped by more good housing data and European stock markets up around one per cent indicating that progress in the European Union with its troubled members are not working against investor confidence.

On Wall Street

For the record, the Dow rose 36.71 points or 0.28 per cent to 13,021.82, while the S&P 500 put on 6.02 points or 0.43 per cent to 1415.95.
The rise was pretty good considering the Republicans boss in the House, John Boehner, explained that the Democrats had not seriously embraced spending cuts and he didn’t think much progress had been made on negotiations over the past two weeks.

This should have hurt stocks, but the optimists are prevailing and I do get a feeling that there will be a horse-trading moment where one or both sides will talk tough.

That said, I can’t see this market falling too far because there are dip buyers on the sidelines that want stocks like Telstra at $4.10 or even $4.20! Who would have tipped this? Well, we did in the Switzer Super Report but I shouldn’t boast.

Data watch

Adding to the positive picture in the USA was pending home sales, which rose 5.2 per cent in October. The Yanks have not seen readings like this for over five years — that’s before the GFC.

On the gross domestic product (GDP) front, economic growth sneaked up to a good 2.7 per cent and this validates an argument I have been running all year that you can’t underestimate the Yanks.

Right now, we’re spectators in a game of chicken played out by the Democrats and Barack Obama with the Republicans. It’s the winners versus the losers and if testosterone takes over in the next week, stocks could react negatively.

Market outlook

I’d like to know what will happen in the short-term but I don’t. On the other hand, I am betting on a nice early rally in late December rolling into early 2013. After that I expect a good 2013 with the likes of Deutsche Bank and Bank of America Merrill Lynch both tipping the S&P 500 index to top 1,600. Given it’s now around 1400, that’s an expected rise of 200 points or around 14 per cent.

These guys don’t guess numbers, they use models of the economy, company profits, commodity prices, etc. to arrive at their guesses. They are only guesses, but they are ones I like because they confirm my view.

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.

Watch more from Peter on SWITZER TV.

Published on: Friday, November 30, 2012

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